slovak telekom – annual report 2011

Slovak Telekom – Annual Report 2011

Content 4 Introduction of Slovak Telekom Group

24 Telecommunications Market in Slovakia

31 Report of the Company‘s Management

57 Financial Statements

Introduction of Slovak Telekom Group

5 Foreword of the Chairman of the Board

7 2011 Milestones

9 SlovakTelekomGroupProfile

14 Corporate Governance

I

Foreword of the Chairman of the Board

Dear shareholders, customers and readers,

Miroslav MajorošChairman of the Board of Directors and CEO

After a momentous year of integration, our Company entered a new phase in orientation 2011. As the largest telecommunications operator, we have an entire calendar year behind us, during which we managed to reach our ambitiousgoalsandachieveahighlevelofprofitability.SlovakTelekomisstill looking to further changes, arising primarily from macroeconomic fac-torsbutalsobyourambitiontobecomeanevenmoreflexibleoperatorinadynamically evolving market.

Lookingat2011fromafinancialstandpoint,itisreasonabletocallitsuccessful, although some parameters did not score rising development. Externalfactorspusheddownearnings–furtherwavesofregulationsonaEuropeanorlocallevelrepresentasignificantchallenge,andtheSlovakTelekom Group saw slightly reduced earnings for the third year in a row; this year, the nominal reduction was the lowest. Despite this, we have achievedsomeexcellentresults:weinvestedgreatlyintothemarket,asattestedbyasignificantlylarger3Gcoverageandtheopeningofthenew,largest-everdatacentre.Wearesimultaneouslyworkingtomaintainprofit-ability in spite of lower revenues, as demonstrated by the EBITDA (earnings beforetax,interest,depreciationandamortization)ofEUR389million.

OurendeavourtomakeactivitiesmoreefficienthastakentheformoftheAlexanderTransformationProgram,institutedfortheyears2011to2014.Itsfirstyearhasalreadyshowngoodresults:reducedexpenses,numerousactivities consolidated, and successful integration of the last major portion oftheCompany:networks.AspartofAlexander,weareplanningeffectiveportfolio revision in coming years, and other steps to be applied gradually across the Company.

The last twelve months have proven the full saturation of the telecommuni-cations business, and several segments will show no further growth. Slovak Telecom,however,identifiedareasworthinvestingin.Datanetworks,theICT segment and content services have the potential for growth, and our Company has undertaken new activities in each of these.

For several years we have been discussing the effort to offset the drop in fixedvoiceservicerevenueswithotherareas.Thisyearagainweachievedanexcellentoutcome–adropoflessthanonepercent.Manyactivitieswereaccomplished:thenumberofbroadbandaccessesandoffixedinternet customers is increasing; digital television has had another produc-tiveyear(withagrowthinbaseof30%);thedatacentreopenedsuccess-fullyinJune2011,andwithinafewmonthsitsfirstclientsstartedusingitsservices.TheICTsegment,too,perseveredthroughoneofitsmostdifficultyears, and few companies can boast of a revenue increase of 14 percent, as can our subsidiary PosAm. The combination of ICT activities in-house and of PosAm is a promising sign for the Group’s growth in a segment that hasclearpotential.ThesubsidiariesZoznamandZoznamMobilelikewiseexperienceddouble-digitgrowth(by12percent),whichconfirmsitsorienta-tion as a strong player in internet content.

Asforfixed-linebusiness,wehavetomentionnewinvestmentintheopticnetwork, now available in 27 towns across Slovakia. The number of broad-band accesses to our networks is increasing year on year; we are nearing the milestone of a half million accesses, which we will probably reach in the upcoming12to18months.

Introduction of Slovak Telekom Group Foreword of the Chairman of the Board | 5

In addition to the various technologies, however, we appreciate the need for high-quality content. In digital television, our successful and solidly established(overfiveyears)Magioplatformisstillscoring.ItisavailablealloverSlovakiathankstoitsfunctioningonbothmetallicandfibrenetworks,as well as via satellite. Magio, with its wide spectrum of functions, is meant to speak to customers in a different way now. During the year we brought a number of new channels to the screen, and in the fall the interesting servicesMagioarchív(Magioarchive)andSpustenieodzačiatku(Playingthebroadcastprogramfromthebeginning).IntheChristmascampaign,forthefirsttimewebothputinplacepricebenefitsandtriedsellingservicesbased on their functions and applications; this brought substantial sales results.Atthesametimeweexploitedthedigitalizationphaseunderway,whichwasprovensoundinthenextsixmonths’solidgrowthincustomerbase.

We had another challenging year in the mobile segment. Competition is growing more intense; it is not just operators with established networks trying to interest customers, but also new players selling services under different brands. Our Company got people interested in a different way, or rather focused on a targeted segment. Collaboration with the Disney brand led to introducing SIM cards with special Cars and Hannah Montana con-tent collections, stylish packaging and parent control tools. As with Magio, weareworkingtowincustomersinadifferentway:throughaddedvalues,exclusivecontent,orapplicationsforparents.

The question of segmentation, with sales, remains the highest priority. Cus-tomerpreferencesdiffer,andthatiswhywehaveadaptedaflexibleofferinginthePodľaseba(MyChoice)programs.Wearealsoaddingtargetedservicestotheportfolio,liketheŠtudentskýpaušál(StudentPlan),combin-ing such preferred services as calling, mobile internet and a promotional smartphone.

Over the past year, smartphones have seen a pronounced growth in sales. Though they often accounted for 35 to 50 percent of sales, in the last two months they clearly dominated sales – during the Christmas campaign three of four telephones sold were smartphones, with which we sell a new Internet in mobile data program portfolio. There has been a fundamental

change in mobile telephone use over the last two to three years. In new items, customers want not only top rate hardware, but above all the use of mobile applications and connectivity via a reliable network.

This is one reason we invested heavily in 3G technology in 2011. We expandedcoveragefrom42to65percentofSlovakia’spopulation,andscoredseveralfirstsinmobileinternet.InMarchwewerethefirstoperatortointroduceHSPA+21Mbpstechnology;insummerweexecuteda3Gtestunique in the world; and in October we commercially launched HSPA+ 42 Mbpswith5.8Mbpsuplink.

Last but not least, in October we launched the new Telekom brand. This was a great step for the Company. It culminated our integration process, and from here onwards customers will associate our Company with a single brand, and have available a single customer line, a single web portal and e-shop, and a common sales network.

Further consolidation, and building on the past year’s many accomplish-ments, awaits the Company in 2012. We hope to strengthen our position in the ICT segment, remain a strong player in mobile internet, and have the widest offering of promotional telephones, particularly smartphones. We will be investing in the market and in technology, and improving our thriv-ingplatforms.UndertheTelekombrand,wewilldevelopintotheSlovakcustomer’s favourite operator. Though these are big ambitions, I sincerely hope to achieve them in 2012, and enjoy, together with our clients, further success in the Slovak market.

Miroslav MajorošChairman of the Board of Directors and CEO

Introduction of Slovak Telekom Group Foreword of the Chairman of the Board |6

2011 Milestones

JanuaryInternet news service on TV screens: Customers with Magio digital televi-sion no longer have to switch on their computers or look for their mobile phones to read the latest news. With a Magio remote control they have easy access to articles from Topky.sk and Športky.sk.

New maps: TheZoznam.skinternetportalhasinnovateditsoriginalmapsolution and come up with a completely new design and functionality. Asignificantchangeoccurredwithrespecttothedomainitself;theoriginalKompas.sk was changed to mapa.sk, which is more intuitive and easier to remember

February12 new TV channels added to Magio Sat: TV channels of various genres have been added to the Magio Sat service, most of them in the new Magio Sat Komplet package. New items in the offering include Discovery Science, DiscoveryWorld,UniversalChannel,thechildren’schannelNickelodeonand the sports channel Eurosport 2.

Zoznam assists startups:Zoznam.skdecidedtoassistpromotionofSlovak start up internet companies and projects. It offers marketing, media andexperthelpindevelopingandspreadingawarenessofnewprojects.

MarchDisney collection pre-paid cards – Slovak Telekom launched new prepaid cards in two versions, Hannah Montana and Cars, thereby strengthening its segmentation of products and services for children. The new item also offers special packaging with stickers and other branded items.

The first network with HSPA+ 21 Mbps: SlovakTelekomisthefirstcom-pany in Slovakia to start further enhancement of the 3G network, and has graduallyextendeditfromthelaunch(inthreecities:Bratislava,Piešťany,Komárno)tootherlocations.

DigitalsignatureforTatrabanka:itisthefirstbankinSlovakiatointroducedigital signatures to authenticate their clients’ signatures. PosAm partici-pated in the successful launch of this useful solution.

AprilTraining of sales representatives in sign language:60employeesinTelekom Centres learned the basics of the sign language. They joined the ranksofthe160salespeoplealreadytrained.

MayEU-roaming: A new roaming package offers cheaper calls in the European Unioncountries.Itwasfirstlaunchedforbusinesscustomers,andlaterforother segments as well.

Topky.sk redesign:Zoznam.skbroughtoutarefreshedversionofitsnewsmagazineTopky.sk.Theredesigndidnotfeaturerevolutionarychanges,butitdoesrespondtoreaders’currentpreferencesandexpectations.

New look of Zoznam.sk title page:ThenewtitlepageofZoznam.skoffersamorelightandmoderndesign,emphasizingthemostattractivecontentand most used page functions.

Finance Manager of the Year: TREND weekly declared the winner of the third annual Finance Manager of the Year survey. The winner was Miroslav BielčikfromPosAm.

JuneSlovak Telekom opens state-of-the-art data centre in Slovakia: Telekom Data Centre is a unique 5-storey building designed from the very beginning with emphasis on the highest technological, security and environmental standards. The Bratislava Data Centre project underlines Slovak Telekom’s long-term strategy of offering a wide portfolio of ICT services with added value.

Number of Magio television customers exceeds 150 thousand: The lucky one can enjoy Magio TV on a top LCD television set; all Magio customers benefitedfromthefactthemilestonewasreached:asapresentforthem,alltelevision channels were accessible free of charge throughout July.

Largest offering of discounted telephones: The summer campaign broughtanewgoal:tohavethebroadestofferingofdiscountedtelephonesin the market and the highest number of discounted telephones at the price ofEUR1.

World class Sun and Fun at Magio Beach 2011:Forthefifthtime,therightbankoftheDanubeatTyršovonábrežieriversideinBratislavaturnedintoanoasisofpeace,activerelaxationandentertainment.TheMagioBeach,which has become an integral part of the summer in the capital, opened right on Children’s Day.

Relax and responsibility on Magio Beach: Through activities accompany-ing Corporate Responsibility Week, visitors had a look into the world of the disadvantaged, received useful advice concerning internet security, had somehealthyexercise,orlearnedthesecretsofsignlanguage.

(CompanyBusinessandFinancialReport.)

Introduction of Slovak Telekom Group 2011 Milestones | 7

Slovak Telekom starts IPv6 protocol testing with the aim of ensuring a smooth and trouble-free changeover for its customers. Thus Slovak Telekom’s internet platform is already interconnected with several Slovak andinternationalinternetprovidersviaIPv6aswell.

JulyUnique World-Wide Test in 3G Network: In cooperation with the parent company,EricssonandQualcomm,SlovakTelekomperformedthefirsttesting of HSPA+ 42 Mbps technology in single carrier mode.

3G for 50% of the population: HSDPAandHSUPAdatatechnologiesarenow available for half of the population of Slovakia.

Cheaper data roaming in Travel & Surf: Slovak Telekom joined a joint initiative of Deutsche Telekom, and brought out three data packages for surfingintheEUandinothercountriestoo.

More modern look for Dromedar.sk:Zoznam.skcontinuedinredesigningitsprojects.HavingfinishedtheTopky.sknewsportalandtheZoznamtitlepage, it came up with innovations on the Dromedar.sk travel portal.

AugustChild safety on the internet: A new free Parent Control service for Magio Internet or Mobile Internet customers enables parents to block inappropri-ate pages on the internet at various levels depending on their children’s age. The service can be set up from home, without installing an application.

New features for Optik Internet:HigherspeedandFUPcancellation.

Kariéra.sk undergoes redesign: After three years, Kariéra.sk has acquired a stable 2nd position in the market, indicating its popularity with both users and companies advertising vacancies. In the last year the portal grew by 70%withavisitorrateexceeding200thousandrealuserspermonth.

SeptemberŠtudentský paušál (Student Plan): A new type of calling plan offers data inthebasicpackageandflexibleuseofcallminutesandSMS.Themostinteresting smartphone models for the target group were selected.

Internet in mobile phones: Newportfolioofplansforsurfingviamobilephones covers the needs of both less and more demanding customers.

You can access Facebook via Magio television: With a new application, Magio TV customers can read and write comments using their TV remote control.Theapplicationenablesuserstocreateseveralprofiles;ifthereareseveral Facebook users in one household, each of them can have their own account.

Pieseň pre Nepočujúcich (Song for the Deaf): The Company became a sponsorofthesong“Zvukoprázdno”(Soundlessness)bythebandDesmod,to support the hearing-impaired and inform the public about its world. A video was produced for the song featuring a deaf actor.

New TV Programme at Zoznam:“Telkáč”isapersonalizedonlineTVpro-grammewithsimplesettingsandcontrolandremoteMagioBoxrecording.

Dievča leta (Girl of the Summer) SMS contest:FortheDievčaletaproject,ZoznamMobilealsoarrangedtechnicalaspectsofpaymentsinthedrawingfor2cars.

Nominations for IT Company and IT Project of the Year: PosAm was shortlisted for 2011 IT Company of the Year. A b-Sign project was short-listed for 2011 IT PROJECT of the Year 2011.The project objective is to enable use of signature server technology and tablets for common branch transactionsandcomputerizeduseofsignaturesobtainedfromsignaturetablets. The project was entered by Tatra banka and PosAm.

OktoberHSPA+ 42 Mbps: SlovakTelekombecamethefirstoperatorinSlovakiatolaunch commercial operation of HSPA+ technology with even higher rates (42Mbps)andfourtimeshigherdataupload(5.8Mbps)infivecities.

Safe SIM Card produced for children and parents: Pre-paid Disney collec-tionSIMcardshavefivenewservicesforparentstohavebetteroverviewoftheir children’s calls and safety.

Magio Archive and Playing the program from the beginning: This long-awaited service offered the possibility to play a program already running from the start, by rewinding, and watching programmes already broadcast. The function automatically records selected television channels; pro-grammes shown up to 7 days back can be played.

November13 episodes of the OVCE.sk animated series have been made, to warn about the dangers of internet and mobile communication. New episodes are devoted to friendships on the Facebook social network, the desire to have the top mobile phones, behaving like action heroes and the dangers ofexplosives.Thelanguageoptionsarealsoanovelty.BesidesSlovak,episodes can be watched in German, Slovenian, Polish and Estonian.

Zoznam extends product portfolio: Two new items are to support further growth.ThemagazinestartupPlníElánu.skfilledthegapintheSlovakInternetforthequickly-growingsegmentofusersabove40.Dopytovač.sk,anewplatformestablishedonthebasisofZoznamKatalóg,facilitatescommunication between clients and suppliers from small and medium enterprises.

DecemberStudents should read more and think more critically in schools: Thirteen projectssupported,withthetotalamountofEUR40,000fromtheTelekomEndowment Fund with the Intenda Foundation, are to help attract children to reading and support their creativity and critical thinking.

Zoznam continues redesigning:TheinternetportalZoznam.skcontinuedmodernizationofitsproductportfolio.Amorepleasantuserenvironmentand new functionalities are available at the music fans portal Hudba.sk, and at the country’s most comprehensive municipal public transport portal imhd.sk.

(Informationonthefinancialstatusofthecompanyis included in Section IV with separate and consoli-datedfinancialstatementsofthecompany.)

Introduction of Slovak Telekom Group 2011 Milestones |8

SlovakTelekomGroupProfile

Values identical for all companies forming the DeutscheTelekomGroup:

� Customer delight drives our action; � Respect and integrity guide our behaviour; � Team together – Team apart; � Best place to perform and grow; � I am T – Count on me.

Companies within the Group

The Slovak Telekom Group comprises the parent company Slovak Telekom,a.s.(SlovakTelekom)anditssubsidiariesZoznam,s.r.o.(Zoznam),ZoznamMobile,s.r.o.(ZoznamMobile),TelekomSec,s.r.o.(TelekomSec),andPosAm,spol.s.r.o.(PosAm).TheInstituteofNextGen-erationNetworksinliquidation(InstituteofNGN),aninterestassociationoflegal entities, is also part of the Slovak Telekom Group.

The Slovak Telekom Group as the provider of comprehensive telecom-municationsservicesoffersitscustomersfixednetworkservices,internetconnection, digital television services, data services, sale of terminal equipment and call centre services, mobile communication services, internetcontent(ZoznamandZoznamMobile),aswellassecurityservices(TelekomSec).ThefocusoftheInstituteofNGNwastosupportdevelop-ment of NGN technology in Slovakia. It was dissolved by a decision of the ordinaryGeneralMeetingasof28February2010andputinliquidation.It was deleted from the registry of special interest associations of legal enti-tiesasof18July2011

All information included in this Annual Report, which is presented in rela-tion to the Slovak Telekom Group, relates to all companies forming the Group.

The Slovak Telekom Group is part of the worldwide Deutsche Telekom group of companies. The magenta T is an unmistakable graphic symbol of all group companies and it also stands for the globally applied values honoured by their employees.

Source: Slovak Telekom

Introduction of Slovak Telekom Group Slovak Telekom Group Profile | 9

Slovak Telekom, a.s.

Slovak Telekom is the largest telecommunications operator with many years’experienceandinternationalexpertise,bringinginnovativetechnol-ogy trends to Slovak telecommunications market. The Company owns and operates a telecommunications network which covers the entire territory of the Slovak Republic.

It provides national and international voice services and a wide portfolio of modern data services under its Telekom brand (or T-Com and T-Mobile before).TheCompanyisalsothelargestprovideroftheMagiobroadbandfixedinternetinSlovakia.ItisSlovakia’sfirstoperatortoofferinteractivedigitaltelevisionviabothfixed(metallicandoptic)networkandviaDVB-S2,thesatellitetechnology.TheCompanyoperatesoneofthelargestnextgenerationnetworks(NGN)enablingtheuseofvoiceanddataservicesononecommonIPplatform.InordertobeabletoprovideSlovakia’scitizenswith new and more convenient services, the Company has made huge investmentsinextensionofitsopticalinfrastructure.

Slovak Telekom is the only operator in the Slovakia to provide its customers with mobile access to the internet via four high-speed data transmission technologies–GPRS/EDGE,WirelessLAN(Wi-Fi),UMTSFDD/HSDPAandFLASH-OFDM, and it is also the operator with the highest number of roam-ingpartners.Customerscanuseroamingservicesinthenetworksof436mobileoperatorsin206destinations,andGPRSandMMSroamingwith247GSMoperatorsin126destinationsworldwide.

SlovakTelekomiscertifiedforqualitymanagementunderENISO9001:2008,fortheinformationsecuritymanagementsystemunderISO/IEC27001:2005andtheenvironmentalmanagementsystemunderENISO14001:2004.2004.TheCompanyispartofthemultinationalDeutscheTelekomGroup(Frankfurt,AmtlicherHandel:DTE/NYSE:DT).

Registered Office:Karadžičova10,82513BratislavaLegal form:Joint-stock companyIncorporated in the Companies Register:DistrictcourtofBratislavaI,Section:Sa,InsertNo:2081/BDate of Incorporation:1 April 1999Identification and Tax Information:CompanyIDNo(IČO):35763469,TaxPayerID(DIČ):2020273893,VATIDNo(IČDPH):SK2020273893;Banking Information:Tatrabanka,a.s.,BankAccountNumber:2628740740/1100,IBAN:SK2811000000002628740740

Principal Business Activities of the Company: � provision of telecommunications services against payment (transmis-sion,processing,creationandmediationofinformation)forindividualsand legal entities, namely voice, graphical, picture, data, information and multimedia telecommunications services and all combinations thereof;

� setting up, operation, construction, maintenance, and servicing of the telecommunications equipment, networks and information technologies owned by other entities, under concluded contracts;

� preparation and updating of information databases for information systems in the telecommunications sector;

� publishing, distribution and sale of directories of subscribers of indi-vidual telecommunications services on various media;

� connectionofaspecificpartofthepublictelecommunicationsnetworkto the international telecommunications network, concluding of inter-national agreements in the telecommunications sector related to the business activities of Slovak Telekom, and proposing prices and tariffs for domestic and international services, including including billing and clearing thereof.

Shareholder Structure � Deutsche Telekom AG owns 51% of shares; � the Slovak Republic, represented by the Ministry of Economy SR owns 34% of shares;

� National Property Fund of the Slovak Republic holds 15 % of shares.


Zoznam,s.r.o.

OneofthemostfrequentlyvisitedSlovakinternetportals,Zoznam.sk–www.zoznam.sk,operatedbytheZoznamcompany,wasestablishedin1997.ItspecializesinSlovakinternetwebsitesearchanditalsooffersthe internet users everything that the Slovak internet can offer, all that in awell-arrangedformat.ThereforeZoznam.sktodayoffersover40on-lineproducts.ThemostimportantproductsoftheZoznam.skportalincludeanewsserverTopky.sk,specialisedmagazines(Mojdom.sk,Dromedar.sk,oPeniazoch.sk,Autoviny.sk,Feminity.sk,oZene.sk,Rexik.sk,Baby-web.sk,Urobsisam.sk),andthefreemailservicemail.zoznam.sk,gamingportalPauzicka.sk,communityportalforsharingmultimediacontentFree.sk,andjobportalKariera.sk.Acatalogueofcompanies‘Katalógfiriem’isanim-portantpartoftheZoznam.skserviceportfolio,enablingsmallbusinessesto present themselves and their contact information professionally on the internet.In2011,Zoznambroughtitsusersanadd-onplatformcalledDopytovačbasedontheZoznamKatalóg,whichfacilitatescommunicationbetweenclientsandSMEsupplier.Thetrendtowardsunifiedvisualsforcontentmagazineshascontinued.Redesignsin2011includedproductssuch as Dromedar.sk, Feminity.sk, Kariera.sk, Topky.sk and the title page ofZoznam.sk.NewprojectsthatconvenientlysupplementedtheZoznamproduct portfolio and introduced new content and advertisement op-portunities included the discount BOOMER.sk portal offering discounts ofover50%;thePC.sktechnologymagazineoninnovationsinhardware,technology, software and happenings in the IT world; a new personalised andeasy-to-configureonlineTVprogrammecalledTelkáč.sk,withwellarrangedcontrolsandenabledremoterecordingtotheMagioBox;andthePlníElánu.skmagazinefortheSlovakInternetnicheofafastgrowingsegment of people over 40.

An independent audit by Mediaresearch company in October 2011 showed thevisitrateofZoznam.skportalanditsproducts(exceptTopky.sk)totalling1,754,025 real users. Compared to the previous year, the number of real usersregularlyvisitingZoznaminternetpagesincreasedby111,242,whichisapproximatelya6.3%year-on-yearincreaseinthevisitrate.

ThevisitrateofTopky.skduringthesameperiodwasapproximately1,209,200 real users, a 22% rise compared to the previous year

Registered Office:Viedenskácesta3-7,85101BratislavaLegal Form:Limited liability companyIncorporated in the Companies Register:DistrictCourtofBratislavaI,Section:Sro,InsertNo.24598/BDate of Incorporation:1January1998Identification and Tax Information:CompanyIDNo(IČO):36029076,TaxPayerID(DIČ):2020091997,VATIDNo(IČDPH):SK2020091997Banking Information:Tatra banka, a.s., Bratislava branch, Bank Account Number 2624131673/1100

Principal Business Activities of the Company: � provision of information and advertising services by means of computer technology;

� advertising and promotional activities; � consulting activity within the relevant scope of business.

Ownership Structure: � Slovak Telekom, a.s. is the sole owner of the company.

ZoznamMobile,s.r.o.

The company was founded in 2002 when it started to operate mobile inter-net content services such as the sending of logs, MMS and ringing tones. It ranks among the top companies providing mobile technologies and solutions. The company offers high-quality, secure and proven solutions, tailor-madeaccordingtotheprojectsrequiringeasilyextendiblefunctionsupon the client’s needs.

Registered Office:Viedenskácesta3-7,85101BratislavaLegal Form:Limited liability companyIncorporated in the Companies Register:DistrictCourtofBratislavaI,Section:Sro,InsertNo.27440/BDate of Incorporation:30 September 2002Identification and Tax Information:CompanyIDNo(IČO):35844621,TaxPayerID(DIČ):2020288732,VATIDNo(IČDPH):SK2020288732

Banking Information:Tatrabanka,a.s.,BankAccountNumber2620748430/1100

Principal Business Activities of the Company: � advisoryandconsultancyservicesinthefieldofcommerce,advertising,software, automation, electrical engineering and informatics;

� advertising, publicity and promotional activities; � market research and public opinion polling; � graphic design production; � automated data processing.



PosAm, s.r.o.

Slovak Telekom owns 51% of PosAm, spol. s r.o. PosAm has been operatingontheSlovakandCzechITmarketsince1990.ThecompanyiscertifiedbyISO9001:2000,ISO/IEC20000-1:2005,ISO/IEC27001:2005,OHSAS18001:2007andISO14001:2004.PosAmistheholderoftheSlovakNationalQualityAward(NárodnácenaSRzakvalitu)andasthefirstSlovakia-basedenterpriseitwasgrantedtheaward“RecognizedforExcellenceinEurope”fromtheEuropeanQualityManagementFoundation(EFQM).PosAmhasbeenafully-fledgedEFQMmembersince2007.

PosAM focuses on providing IT services, application solutions and infrastructure solutions to corporate customers. National and international awards quality awards together with unique implementations of its solutions and services underline its strong market position in the area of information technology in Central Europe. Long term relationships with partners like Cit-rix,Hewlett-Packard,IBM,MicrosoftandOracle,investmentsintoemployeetraining, and innovative and visionary potential of the company’s manage-ment ensure continuous improvement and top performance. PosAm’s main objective is to deliver useful solutions to customers and partners which are unique and based on information technologies.

Registered Office:Odborárska21,83102BratislavaLegal Form:Limited liability companyIncorporated in the Companies Register:DistrictCourtofBratislavaI,Section:Sro,InsertNo.6342/BIdentification and Tax Information:CompanyIDNo(IČO):31365078,TaxPayerID(DIČ):2020315440,VATIDNo(IČDPH):SK2020315440Date of Incorporation:3 January 1994

Principal Business Activities of the Company: � provision of application solutions, services and infrastructure solutions for corporate customers

Telekom Sec, s.r.o.

The company was established by a Memorandum of Association dated 22 September2006inthewordingofAmendmentNo.1dated23October2006.

Registered Office:Kukučínova52,83103BratislavaLegal Form:Limited liability companyIncorporated in the Companies Register:DistrictCourtofBratislavaI,Section:Sro,InsertNo.42889/BDate of Incorporation:25October2006Identification and Tax Information:CompanyIDNo(IČO):36691143,TaxPayerID(DIČ):2022269865,VATIDNo(IČDPH):SK2022269865Banking Information:VÚB;BankAccountNumber:2233303757/0200

Principal Business Activities of the Company: � automated data processing; � mediation of services in the area of information technologies within the scopeofgeneralauthorisation(openbusinesslicence);

� information technology service – licensed software installation and configuration;

� technical and organisational arrangement of seminars, courses, conferences, and training courses, within the scope of general authorisation(openbusinesslicence);

� software provision – sale of ready-made programmes, based on licensing;

� software systems maintenance; � design and optimisation related to information technologies; � installation of structured cabling and computer networks.



Institute of NGN in liquidation

TheInstituteofNextGenerationNetworks,anassociationoflegalentities,wasfoundedbySlovakTelekomandŽilinskáuniverzita(UniversityofŽilina)on23October2006.ItwasdissolvedbyadecisionoftheordinaryGeneralMeetingasof28February2010andwasputinliquidation.TheAssocia-tionceasedtoexistbyvirtueofdeletionfromtheregisterofspecialinterestassociationsoflegalentitiesasof18July2011.

Association’s Registered Offices:Poštová1,01008Žilina,SlovakRepublicLegal Form:Special Interest Association of Legal Entities. Date of Incorporation with the Associations Registry:23October2006Identification and Tax Information:CompanyIDNo(IČO):37983229,TaxPayerID(DIČ):2022268787,VATIDNo(IČDPH):SK2022268787Banking Information:VÚB;BankAccountNumber:2231898857/0200

Principal Business Activities of the Company: � thetransferofinformation,experience,know-how,knowledgeandbest practices by and between business environment and academic communities in the area of modern networks and information-communicationtechnologies(ICT);

� development of cooperation between industry and universities with the objective of the economic and social development of Slovakia and an increase of Slovakia’s competitiveness;

� ICT development in individual regions of Slovakia and among small and medium-sizedbusinesses;

� theoretical and practical education for students, university graduates and teachers for applying ideas and principles of an information society and knowledge-based economy, and implementation of ICT and modern methods in teaching processes;

� researchanddevelopmentactivityincooperationwiththeUniversityofŽilinaandotherresearch&developmentinstitutions;

� application of results, research, development and innovation in practice, and creation of conditions for testing of ICT products, services and applications.

Members of the Association: � SlovakTelekomandŽilinskáuniverzita(UniversityofŽilina).

Membership and Cooperation with Slovak Associations by Profession and Industry; Involvement in International Organisations

Slovak Telekom is an active member of the following Slovak organisations:

� Slovenská obchodná a priemyselná komora – SOPK (Slovak Chamber ofCommerceandIndustry)

� Americká obchodná komora v Slovenskej republike (American Chamber ofCommerceintheSlovakRepublic)

� Slovensko-nemecká obchodná a priemyselná komora (Slovak-German ChamberofCommerceandIndustry)

� Republikováúniazamestnávateľov–RÚZ(NationalUnionofEmployers) � PodnikateľskáalianciaSlovenska–PAS(BusinessAllianceofSlovakia) � Fórumprekomunikačnétechnológie–CTF(CommunicationsTechnologiesForum)

� ITAsociáciaSlovenska–ITAS(ITAssociationofSlovakia) � Slovenská asociácia pre káblové telekomunikácie – SAKT (Slovak AssociationforCableCommunications)

� Slovenská asociácia pre elektronický obchod – SAEC (Slovak AssociationofElectronicCommerce)

� Fórumkreatívnehopriemyslu–CIF(CreativeIndustryForum) � Inštitútpreelektronickúzdravotnúdokumentáciu–Prorec(InstituteforElectronicHealthcareRecords)

� Partnerstvápreprosperitu–PPP(PartnershipsforProsperity) � Rada pre reklamu – RPR (Slovak Advertising Standards Council – SASC)

� Klubfiremnýchdarcov(CorporateDonorsClub) � Business Leaders Forum – BLF � HNklub(HNClub) � Slovenskáasociáciafinančníkov(SlovakAssociationofFinanceandTreasury)

� Združeniepreriadeniearozvojľudskýchzdrojov(SlovakAssociationforHumanResourcesManagementandDevelopment)

� HR Open Forum � Slovenská asociácia BOZP a OPP (Slovak Association for Health ProtectionandSafetyatWorkandFireProtection)

� Spoločnosťpreprojektovériadenie(ProjectManagementAssociationofSlovakia)

� Asociáciapreprenositeľnosťčísla(NumberPortabilityAssociation) � Slovenskáasociáciaprevedomostnúspoločnosť–SAKS(SlovakAssociationforKnowledgeSociety)

ZoznamisanactivememberofAsociáciainternetovýchmédií(AIM), a Slovak Internet Media Association.

Slovak Telekom is represented in the following international organisations:SlovakTelekomisrepresentedintheInternationalTelecommunicationsUn-ion(ITU),whereitisamemberofthestandardisationsector.TheCompanyisalsoamemberofthefollowingorganisations:

� ETNO(EuropeanTelecommunicationsNetworkOperatorsAssociation) � ETIS(E-andTelecommunicationsInformationServices) � ETSI(EuropeanTelecommunicationsStandardsInstitute) � GSMMOUAssociation � FreeMove Alliance � RIPE NCC


Corporate Governance

Asashareholderinitssubsidiaries,SlovakTelekomexercisesitsrightsbyparticipatingatgeneralmeetings,and,ifappropriate,exercisesthecompe-tence of the general meetings in companies where it is the sole share-holder. It appoints its representatives to the statutory bodies of companies, which then submit reports to Slovak Telekom.

Slovak Telekom practices a responsible and transparent model of govern-ance and regularly publishes on its website current and relevant reports on its activities. It also issues information on a quarterly basis on its economic results, publishes its annual report and a corporate social responsibility report every year.

Slovak Telekom, a.s. has long paid particular attention to the internal con-trol environment. The main focus of Company’s management in this regard

is on the control over internal processes and standards. The results of inter-nal testing of the control environment are the subject of a control performed bytheCompany’sinternalandexternalaudit,whichwillconcurrentlyserveas the basis for the statement by the management of Deutsche Telekom AG on the internal control environment within the Deutsche Telekom Group. Thisstatementwasissuedforthefirsttimeasat31December2006.

Slovak Telekom is a holding company, and the principles of corporate governance have been applied to all its component parts, i.e. to the par-entcompanySlovakTelekomanditssubsidiaries,whichin2011were:Zoznam,ZoznamMobile,TelekomSecandPosAm.Allsubsidiariesactedas separate legal entities.

Organisational Structure of the Company

Introduction of Slovak Telekom Group Corporate Governance | 14

Zoznam,s.r.o.aZoznamMobile,s.r.o.

Corporate bodiesThe General MeetingisthesupremebodyofthecompaniesZoznam,s.r.oandZoznamMobile,s.r.o.ThepowersoftheGeneralMeetingareexercisedbythesoleshareholder,whichisSlovakTelekom,a.s.

The statutory bodyofthecompaniesZoznam,s.r.o.andZoznamMobiles.r.o.isamanagingdirectorappointedinthisofficebythesoleshareholder,the Company Slovak Telekom, a. The managing director is Martin Mác, who is responsible for the management, operations and results of both compa-nies.HeisalsothefinancialdirectorofZoznam,s.r.o.

PosAm, s.r.o.Corporate bodiesThe General Meeting is the supreme body of the company. The General Meeting’sscopeofauthorityisdefinedbytheCommercialCodeandMemorandum of Association.

The statutory body of the company are three managing directors. Their powers are stipulated in the Memorandum of Association.

Telekom Sec, s.r.o.Corporate bodiesThe General Meeting is the supreme body of the company. Pursuant to Section132(1)oftheCommercialCode,thepowersoftheGeneralMeet-ingareexercisedbySlovakTelekom,asthesoleshareholder.TheGeneralMeeting’sscopeofauthorityisdefinedbytheCommercialCodeandMemorandum of Association.

The statutory body of the company are two managing directors. The powers of managing directors are stipulated in the Memorandum of Association.

InstituteofNextGenerationNetworksinliquidation

Corporate bodiesThe General Meeting is the supreme body of the association. It consists of all association members. The General Meeting competence are stipulated in the Articles of Association.

Statutory bodies (managing directors) are entitled to act on behalf of the association. The association has two managing directors; their powers are stipulated in the Articles of Association.

The Board of Trustees is the controlling body of the association. It consists of three members.

The chairman of the association’s powers are stipulated in the Articles of Association.

By a decision of the General Meeting, the association of legal entities In-stituteofNextGenerationNetworkswasdissolvedasof28February2010andwentintoliquidation.TheInstituteceasedtoexistbyvirtueofremovalfromtheregisterofspecialinterestassociationsoflegalentitiesasof18July 2011.

Slovak Telekom, a. s.

An inherent component of the system of governance is the Company’s organisational structure, which determines its basic arrangement, divided intocorporatebodiesandexecutivemanagement.

Corporate bodiesThe General Meeting is the supreme body of the Company. The General Meeting’sscopeofauthorityisdefinedbyActNo.513/1991Coll.Com-mercialCodeasamended(hereinafterasthe“CommercialCode”)andthecompany’s Articles of Association.

The Board of Directors is the statutory body of the Company, authorised to act on behalf of the Company in all matters and represent it vis-à-vis third parties. The Board of Directors strategically governs the activity of the Com-pany and decides on all Company matters, unless these are reserved by legal regulations or the Articles of Association for the competence of other Company bodies, or unless delegated by the Board of Directors to other bodies.TheBoardofDirectorsappointstheCompany’sExecutive

Management Board and delegates some powers. It approves the Rules of ProcedurefortheExecutiveManagementBoard.

The Supervisory Board is the controlling body of the Company. It oversees theperformanceoftheBoardofDirectors’competencesandtheexecutionof the Company’s business operations.

The Executive Management Board of Slovak Telekom is responsible for the day-to-day running of the Company in accordance with the decisions oftheBoardofDirectors.TheBoardofDirectorsmayentrusttheExecutiveManagement Board with any activity for which it is responsible, providing the Company’s Articles of Association or Slovak legislation do not prohibit this.TheExecutiveManagementBoardcomprisesthetop-levelmanagersoftheCompany.MembersoftheExecutiveManagementBoardarerespon-sible to the Board of Directors for their activity.


Code of Conduct

The Code of Conduct is a key company document for the prevention of unethical behaviour. Observing the Code of Conduct is obligatory for all employees of Slovak Telekom Group companies, ensuring that the compa-nies act as trustworthy partners for suppliers and customers.

The Slovak Telekom employees have kept to its tenets in their work since 2006.On1July2011SlovakTelekomputintoeffectanupdatedCodeofConduct, which was subsequently implemented by the subsidiaries PosAm andZoznam.ThecurrentwordingoftheCodeisuniformforallcompanieswithin the Deutsche Telekom Group; it brings in joint Guiding Principles andensurestheapplicationofaunifiedcorporatestrategy.Thenewword-ingdefinestheorganisationalcultureaswellasinformationprocessingrules and behaviour standards for business relation.

The underlying principles for decision-making for both managers and em-ployees are morals, ethics, legal standards and corporate values. Increasing company value and correct approach to customer needs and wishes is the priority for employees. Accepting the Code of Conduct is how employees expresstheirloyaltytowardsthecompanyandthroughbehaviourinlinewith corporate values they strengthen the social corporate responsibility on the part of themselves and their company.

Supervision of compliance with ethical business conduct and employee behaviour is effected by means of the Ethics line, which is an independent controltool.Thelineisavailabletoallemployeesandexternalpartners,topresent their comments via telephone, mail or e-mail.

Quality Policy

Slovak Telekom continues ongoing development of an integrated manage-mentsystem,whichstartedbackin2004.Thefinalreportbytheaudit-ingcompanyTÜVNORDCzechconfirmedthevalidityofcertificatesforQualityManagementENISO9001:2008andInformationSecurityISO/IEC27001:2005.

TherecertificationauditoftheEnvironmentManagementSystempursu-anttorequirementsoftheENISO14001:2004internationalstandardtookplaceinparallel.ThenewcertificateawardedasaresultoftheauditprovesthatSlovakTelekomalsocomplieswithitsobligationsinthefieldofenvironment protection.

Since Slovak Telekom pays special attention to all aspects of its business, theExecutiveManagementBoarddecidedtoimplementtheOperationalHealthSafetyManagementSystempursuanttotheOHSAS18001standard.

Thescopeofcertificatesforintegratedmanagementsystemsincludes“Development and Provision of Data Services, Desktop Services and LAN Services including Helpdesk, for Business Segment Clients in Business and StateandPublicAdministration”.

Striving to offer its customers modern, top quality services, Slovak Telekom is continuously improving its processes. The company has applied the Lean SixSigmamethodologywithpositiveresults.SlovakTelekomcooperateswith sister companies within the Deutsche Telekom Group and makes use ofexternaltrainingwiththehighlyregardedGermancompanyUMS.

Introduction of Slovak Telekom Group Corporate Governance |16

Dr. Robert HauberMember of the Board of Directors and Chief Financial Officer (asof1April2011)

HestudiedattheUniversityofStuttgart,UniversityofMainzandattheUni-versityofMassachusetts.HeholdsaMasterdegree(Dipl.Kfm.)andadoc-toraldegree(Dr.)-bothinbusinessadministration.HeservedDeutscheTelekomfortenyearsasaseniorfinanceexecutiveinseveralmanagementpositions. Before his career with Deutsche Telekom he worked for Hewlett Packard,Procter&GambleandDaimlerChrysler,wherehewasinvolvedinthemergerbetweenDaimler-Benz&Chrysler.Within Deutsche Telekom, Dr. Robert Hauber worked from 2002-2005 as Vice President Financial Controlling of T-Mobile International and from 2005-2009 as Senior Vice President Financial Controlling of T-Mobile Interna-tional. Between 2009 and 2011 he has been Head of Financial Controlling of the Europe Segment of Deutsche Telekom. In this role, he was Member of theBoardofDirectorsofT-MobileCzechRepublicandMemberoftheSu-pervisory Board of T-Mobile Austria and Member of the Supervisory Board of PolskaTelefonicaCyfrowa(PTC).SinceApril2011heisChiefFinancialOfficer,ViceChairmanoftheExecu-tive Management Board and Member of the Board of Directors of Slovak Telekom.

Ing. Miroslav MajorošChairman of the Board of Directors and Chief Executive Officer

He completed university education at the Faculty of Electronics and InformaticsattheSlovakUniversityofTechnologyinBratislavaandduringhis professional career supplemented his education through management education programmes at the Harvard Business School and Stanford Graduate School of Business.

Aftercompletinghisstudiesin1983heworkedattheSlovakTelevisionbroadcasting company, where he held several positions, in 1993 being appointed to head the company. As of 1994 he worked as Sales Director ofIBMSlovakiaforindustrysectors,overtheyears1998-2000hewastheGeneral Manager of IBM Slovakia and from 2000 to 2002 was the General ManagerofIBMCzechRepublicandSlovakia.

He has been Company President/CEO and a Member of the Board of Di-rectors of Slovak Telekom since 2003. In 2005 he was elected Chairman of the Board of Directors of Slovak Telekom. He was a member of the Board of Directors of the subsidiary T-Mobile Slovensko since 2003, and from the summer of 2009 to 30 June 2010 was the Chairman of the Board. He has heldthepositionofChairmanoftheBoardofDirectorsandChiefExecutiveOfficerofSlovakTelekomsince1July2010.

ExecutiveManagementBoardofSlovakTelekom


Dušan ŠvalekChief Marketing Officer

His career began with the positions of product and senior brand manager atthecompaniesBenckiserandJohnson&Johnson,respectively.HeworkedintheBostonConsultingGroupforsixyears.HejoinedT-MobileSlovensko in 2004 as Director of the Customer Service Division and since 2007hewasChiefMarketingOfficer.From1Julyto31December2010heheld the post of Marketing Director at Slovak Telekom.

As of 1 January 2011, Dušan Švalek is responsible for marketing strategy for individual segments and for product management and the development of voice and data services in line with Deutsche Telekom‘s international strategy.

Igor MatejovChief Sales and Customer Service Officer

His career started in the Accenture consulting company, where he worked asamanagerforfinancialinstitutionsandinsuranceindustry.AsaMemberof the Board of Directors of Consumer Finance Holding, a.s., a VÚB subsidi-ary, he was responsible for operations, IT and key company projects. In 2007 he joined T-Mobile Slovensko where he managed Customer Service DivisionastheExecutiveDirectorandfromFebruary2009heworkedastheChiefSalesOfficer.From1Julyto31December2010heheldtheposi-tion of Sales Director at Slovak Telekom.

As of 1 January 2011, Igor Matejov manages two areas – he is responsible for all sales channels of the company and for customer care and services. HisscopeofcompetenceexpandedtoincludethewholeICTsegmentofSlovak Telekom from 17 October 2011.

Introduction of Slovak Telekom Group Corporate Governance |18

Dipl. Ing. Rüdiger J. SchulzChief Operating Officer Network and IT (until 16 October 2011)

AfterhisstudiesofelectricalengineeringattheUniversityofHamburghealso focused on telecommunications, and later added business manage-mentstudyattheuniversityinKoblenz.Hisprofessionalcareerbeganwithservice in the German navy as chief engineer responsible for logistics, technicaloperationsandship-fitting.R.J.SchulzjoinedtheDeutscheTelekom Group in 1992. In the beginning of his work in Hamburg he was responsible for technology platforms, and later became responsible for Marketing&Salesintheretailandbusinesssegment.Since2005heworkedforT-SystemsasExecutiveVice-PresidentofBusinessCustomersand Large Enterprises in the north-east region of Germany and developed hisexperienceintheITarea.

HejoinedSlovakTelekominBratislavainNovember2006,takingoverthepositionofSeniorExecutiveVice-PresidentforMarketing,SalesandTech-nology/COO.HewasamemberoftheExecutiveManagementBoardbeingresponsible for marketing and sales, production and services for business and residential customers and wholesale. He worked as Chief Operating OfficerNetworkandITfrom1July2010to16October2011.

Mgr. Petra BerecováChief Human Resources Officer

ShestudiedattheFacultyofPhilosophyattheComeniusUniversityinBratislavaandsubsequentlyattheFacultyofLaw,specializingintheinter-nationalrelationshipsandlawapproximation.Sheworkedintheautomo-tiveindustryashumanresourcesdirectoratYazakiSlovakia.Shestartedwith T-Mobile Slovensko in 2005, as a senior manager for compensation andemployeebenefits.ShemanagedtheT-Mobile’sHumanResourcesDivision since 2007, and as a member of top management she participated in the Company’s business decisions. As of 1 January 2010 she assumed thepositionoftheExecutiveVice-PresidentforHumanResources/CHROofSlovak Telekom, while continuing her function as Human Resources Direc-tor of T-Mobile Slovensko. As of 1 July 2010 Petra Berecová was appointed asChiefHumanResourcesOfficeroftheintegratedSlovakTelekomcompany.


RNDr. Milan Hain, CSc.Acting Chief Operating Officer Network and IT (asof17October2011until31December2011)

HavingcompletedhisstudiesattheComeniusUniversityinBratislavaandpostgraduatestudiesatEindhovenTechnologyUniversityintheNether-lands, he worked with the Všeobecná úverová banka bank from 1993, holding several positions, including the Director of the IT Development Division He joined EuroTel as its IT director in 1999 and as member of its executivemanagementasofMay2000.Inthisfunction,foroveradecadehe participated in growing, building and continually transforming the Company to the present.

Following the integration he has worked as information and business technology Director since 1 July 2010. From 17 October until 31 December 2011hewasActingChiefOperatingOfficerNetworkandIT.

B.Sc.E.E. Branimir MaričChief Operating Officer Technology and IT (asof1January2012)

BranimirMarićbeganhiscarerwithHrvatskiTelekominthefieldofInternet network management and development. Later he was the Head of the Group for customer IP and data networks, and worked as Director of Technical Research and Product Development. He held the position of ExecutiveDirectorforGroupNetworkStrategyandPlatformDevelopmentandatthesametimehewasmemberoftheCroatianT-Com’sExecu-tive Board. After the merger of Hrvatski Telekom and T-Mobile Hrvatska inJanuary2010,BranimirMarićheldthepostofOperatingDirectorforServiceManagementandNetworkOperationsSectorforfixedandmobilenetworks.

UnderBranimirMarić’slead,HrvatskiTelekommadesignificantstridesforwardinimprovingthequalityofmobileandfixedservices,consolidatingthemobileandfixedsegments,anddevelopingtoolsandapplicationsforoperationalsupportsystems,whichallowincreasedoperationalefficiencyand customer satisfaction.

Since 1 January 2012 has held the position of Slovak Telekom’s Chief OperatingOfficerTechnologyandIT.


Szabolcs Gáborjáni-Szabó, CFAMember of the Board of Directors and Chief Financial Officer (until31March2011)

He studied Mathematics and Computer science at the Eötvös Loránd UniversityinBudapestandatthesametimeEconomicsattheFacultyofManagementattheUniversityofEconomicSciencesinBudapest.In2000hegainedthedegreeCFA(CharteredFinancialAnalyst)attheCFAInstitute.His professional career began at the Hungarian Commercial and CreditBank–K&HBank,intheSpecialProjectFinancingDepartment.In1995–1996heworkedattheBudapestDerivativesExchangeandfrom1996workedinthefinancialfieldinthecompanyMagyarTelekomandits subsidiaries, holding, among others, the position of deputy manager ofthecontrollingdivision(from1999to2001)andmanageroftheGroupTreasuryBranch.In2005hejoinedSlovakTelekomasSeniorExecutiveVice-President for Finance/CFO and a member of the Boards of Directors of Slovak Telekom. He was also a member of the Board of Directors of T-Mobile Slovensko. He was member of Slovak Telekom’s Board of Directors anditsChiefFinanceOfficerfrom1July2010until31March2011.


Board of Directors of Slovak Telekom

Other members of the Board of Directors in 2011: � SzabolcsGáborjáni-Szabó,CFA,Member(until28April2011)

Ing. Miroslav Majoroš - Chairman

Dr. Robert Hauber – Member (since28April2011)

Dr. Ralph Rentschler - Member

Ing.RóbertSándor–Member

Ing. Martin Mác – Vice-Chairman

Albert Pott – Member

Ing. Miloš Šujanský, M.B.A. – Member

Supervisory Board of Slovak Telekom

� Dr.Hans-PeterSchultz–Chairman(from9November2011)* � Ing. Katarína Lešková – Vice-Chairman � Cornelia Elisabeth Sonntag – Member � TanjaWehrhahn–Member(from9November2011) � Ing. Miroslav Galamboš – Member � Ing.JanVozár–Member � Ing.JúliusMaličký–Member � Milan Brlej – Member � Ing.JánHláčik–Member

Other members of the Supervisory Board in 2011 � AndreasHesse–Chairman(until9November2011) � *Dr.Hans-PeterSchultz–Member(until9November2011)


Telecommunications Market in Slovakia

25 More competition, higher quality services

27 Telecommunications Market Development

II

More competition, higher quality services

Legislative conditions

The legislative process of elaborating a new act on electronic communica-tions began in 2010, based on review of directives constituting the so-called regulatory framework for electronic communications. The new legislation should introduce more effective protection of consumer rights and privacy, as well as reinforce regulation at the national and international level. The new Act 351/2011 on Electronic Communications has been in effect since 1 November 2011, save for some provisions concerning user relations, which are in effect as of 1 January 2012.

In connection with the new Act on Electronic Communications, the Slovak TelecommunicationsOfficein2011issuedregulationsonitsimplemen-tation. Its substance is the numbering plan, fee schedule for the use of numbersandfrequencies,anddetailsofnumberportability.TheOfficefurther issued a new general permit for electronic communications service provision.

Market regulation

2011wasaffectedbyintensifiedregulationandachangeintheregula-torypositionsofcompaniesinthewholesalemarketforfixednetworkcalltermination,andbytheirbeingdesignatedashavingsignificantmarketpowerandimposedobligations,whichinfluencedcompanies’mutualrela-tionsanddiscussionsarisingfromsuchmodifiedrelationships.Furthermore,priceregulationhasintensifiedthroughintroductionofapurelytheoreticalapproachtosettinginterconnectionpricesofaso-calledefficientoperator.Theresultswillbeseenin2012.InfluencedbythetrendsofEurope-widepriceregulationoffixedandmobileinterconnection,andinparticularbytheEuropeanCommissionrecommendationontheregulatorytreatmentoffixedand mobile interconnection rates, the national regulatory authority started todevelopanotherspecifictheoreticalmodelforcost-basedprices,whichisgraduallytosupersedevariousexistingapproachesandbecomeatoolfordramaticreductionofinterconnectionfeesininterconnectingfirstfixedandthen mobile networks. Towards the end of 2011, the Slovak Telecommunica-tionsOfficeinitsrepeatedmarketanalysisoffixednetworkcallorigination,suggested imposing a new obligation for wholesale access to subscriber lines.

In2011theTelecommunicationsOfficeoftheSlovakRepubliccontinuedregulating mobile network interconnection pricing. The asymmetry granted tothemarket’sthirdplayer,TelefónicaO2(permissiontoapplyafeehigherthanothermarketoperators)waswithdrawnin2011.In2012theSlovakTelecommunicationsOfficesuggestsanotherdecreaseofinterconnectionpricing.

Attheendofyear2011,theSlovakTelecommunicationsOfficehasstartedactivites towards starting tender for assignment of free frequencies for mobile broadband services in 2012. Public discussion about this topic has beenrealizedattheendofyear2011andinthebeginningofyear2012.

Conditions for number portability among companies during 2011 were subject to regulations in accordance with the review of directives constitut-ing the regulatory framework for electronic communications, approved at theEUlevel.Theirimplementation,inparticulartheshorteningofnumberportability processing time and introduction of compensation for delayed portability or portability against the subscriber’s wish, will only become ap-parent in the coming year.

The European Commission continued into 2011 proceedings concern-ing the alleged abuse of the dominant position on the broadband internet accessmarket.Theproceedingsbeganon8April2009.

In 2011 Slovak Telekom again decreased prices for local loop access. On 15 May 2011, the monthly rental fee for fully unbundled access to Slovak Telekom’slocalloopswasthelowestintheEuropeanUnion.However,noteven such a price drop was able to boost the low demand for this wholesale service, and most competitors focused further on infrastructure-based com-petition. Only GTS Slovakia, a.s. continued its marginal use of unbundled lo-cal loop access to provide its services; the number of local loops unbundled for GTS Slovakia, a.s. totalled over 100 accesses in 2011.

TheSlovakTelecommunicationsOfficedidnotinitiateregulationofnextgenerationopticalaccessnetworksin2011,despitethefactthattheOffice’sintention to regulate such networks of the relevant wholesale market for physicalaccesstofixedaccessinfrastructurewaspublishedtowardstheend of 2010. The related relevant wholesale markets of physical access tofixedaccesstoinfrastructureandofbroadbandaccess,aswellastheretail market of broadband internet access, constantly showed signs that infrastructure-based competition was intensifying throughout 2011. The market situation was affected by a price decline down to the level of the least expensivecountriesnotonlyacrosstheEuropeanUnion,butalsoinOECDcountries, and also by a reduction in Slovak Telekom’s share of these markets.

SlovakTelekomhasbeen,basedonaTOSRdecisionasofApril2006,auniversalserviceprovider,andhasfulfilledallitsuniversalserviceobliga-tions. Slovak Telekom is likewise regarded as a universal service provider under the current legislation. Act 351/2011 on Electronic Communications alsoassumesthattheTelecommunicationsOfficeoftheSlovakRepublicwill issue, by 31 July 2012, a new decision in the matter of designating a universal service provider, by virtue of which it may designate one or more universal service providers and also opt for not imposing some or all univer-sal service obligations.

Telecommunications Market in Slovakia More competition, higher quality services | 25

Proceedings in the matter of compensation of net costs for the universal service,whicharosein2005-2006,orin2007-2008,wereconcluded,byvirtueofdecisionsbytheChairmanoftheTelecommunicationsOfficeoftheSlovak Republic not to grant compensation, on the grounds that universal service provision had not been an unfair burden for Slovak Telekom. Com-pensationofnetcostsforyears2005and2006willbeafterproceedingsandinvalidatingfirstandsecondinstancedecisionsagainthesubjectofpro-ceedingsontheSlovakTelecommunicationsOffice.TheSlovakTelekom’scomplaint against decisions in the matter of compensation of net costs for years2007and2008hasnotbeendecidedbySupremeCourtoftheSlovakRepublic yet. Slovak Telekom applied for compensation of net costs on universal service for the years 2009 and 2010 in December 2011.

With respect to protection of economic competition in 2011, activities of Slovak Telekom were not subject to any investigation or intervention by the national regulatory authority for competition. Again this year, Slovak Telekom continued to defend its interests in court hearings with respect to the investigation on the legality of decisions made by the national regulatory authority in the past. The Supreme Court of the Slovak Republic upheld the decision of the Regional Court of Bratislava on invalidating the regulator’s decision on the alleged abuse of the dominant position due to the failure to providelocalloopaccess,forwhichthepenaltyofEUR29.37millionhadbeen imposed on the Company, as well as the decision on the alleged abuse ofthedominantpositiondueforunlawfulpricemarginsqueezing,forwhichthepenaltyofEUR2.42millionhadbeenimposedontheCompany.Thecourt sent both cases back to the national regulator for further proceedings, and the regulator is obliged to take another decision in the matter, such that its decisions meet the condition of legality and respect the court’s legal opinion. In the case of the alleged abuse of the dominant position due to the failuretoprovidelocalloopaccessnationalregulatorhasdecidedin2012:theproceedingshavebeenstoppedwithfinalvalidity,becauseithasnotbeen proved that Slovak Telekom had broken the law.

Telecommunications Market in Slovakia More competition, higher quality services |26

Telecommunications Market Development

Oneofthemostsignificanteventsin2010wasinvestmentbyfixedopera-torsinexpandingbroadbandnetworksforhigh-speedinternetconnectionand digital television services, as well as further acquisitions of local alter-native operators. Continuing market consolidation, which will strengthen the position of players already operating both regionally and nationally with a comprehensive offering of telecommunications services, can be expected.Thedeterminingtrendsinmobilecommunicationsin2011wereincreased numbers of users of mobile internet services thanks to a growing penetration of intelligent telephones; ongoing growth of the proportion of invoiced services customers to the overall customer base; and increasing accessibility and enhanced quality of 3G data services because of opera-tors’ investments in network infrastructure. The presence of the third mobile player,TelefónicaO2,intensifiedcompetition,asmanifestedinthegeneralprice decrease of mobile voice and data services.

In2011,marketgrowthcontinuedinthefixedandmobileinternetseg-ments, with smaller local operators of optic and wireless internet networks experiencingconsiderablegrowthinprovidingfixedinternetservices.Thepartial slow-down compared to the preceding period was also a result of ris-ing market saturation and intensive price competition. Telecommunications operatorsfurtherexpandedtheirproductportfolios,andinvestedinthedevelopment of their infrastructure and in the quality of customer care.

The total estimated revenue from sales in the telecommunications market intheSlovakRepublicin2011cametoEUR2.14billion,withayear-on-yeardecreaseofapproximately1.4%.Comparedtotheprecedingyear,the internet services segment achieved the highest increase in revenue in absolutenumbers.TheSlovakTelekomGroupconfirmeditsdominantposi-tion with a market share of 41.9% of consolidated revenue in 2011.

Market Share of Individual Telecommunications Operatorsin2011(%)

Source: Slovak Telekom, a.s., Orange Slovensko, a.s., Telefónica O2, a.s., and internal profes-sional estimate by Slovak Telekom, a.s. for alternative operators.

Slovak Telekom

Orange Slovensko

Telefónica O2

Alternatívni operátori42%

35%

16%

7%

Telecommunications Market in Slovakia Telecommunications Market Development | 27

FixedServicesMarket

Thefixednetworkvoiceservicesmarketcontinuestoshowagradualdecrease in revenue as a result of substitution by mobile voice services and voice services based on IP or broadband internet. As the largest provider of fixednetworkservices,SlovakTelekomaimstostabilizerevenuethroughthe perspective of the best possible customer-oriented service and voice services provision in tandem with other data products.

SlovakTelekom,providingitsservicesunderthe“Telekom”brand,regis-teredatotalof992thousandvoiceaccesses(includingVoiceoverInternet)attheendoflastyear.Thedecreaseinthenumberofcustomersoffixedvoice services came primarily in the segment of traditional voice services, with internet telephony showing slight decline too.

In the business customer segment, increasing demand continued for data and managed services as part of comprehensive solutions based on virtual privateIP(InternetProtocol)networks,thoughoveralldataservicessalesremained at a level comparable to that of 2010.

Dynamic growth in the broadband internet connection services market also continued in 2011, with total estimated customers reaching almost 850,000 and year-on-year growth of 11%. The estimated penetration of broadbandconnectionsthusincreasedin2011toapproximately40%ofall households. The greatest dynamics occurred in connections based on wireless technology and optical connections. In 2011, operators continued investingintoexpandingcoverageandimprovingaccessinfrastructurequality, as indicated by the increasing accessibility of services and higher access speed for end-customers. Again in 2011, continued acquisition of local internet providers by players operating both regionally and nationally broughtfurtherconsolidationoftheinternetmarket,leadingtostandardiza-tion of products and higher-quality customer services.

In the broadband connection market, Slovak Telekom promotes services based on modern optical technology. The Company has started gradual and controlled migration of customers to this technology, as seen in the continuously improving accessibility of services based on this technology, accessibleto368,000householdsattheendof2011.

Mobile Services Market

By the end of 2011, the estimated number of active mobile communication servicecustomerswasapproximately6.43millionusers(includingSkyTollSIM),indicatingapenetrationofmobileservicesatthelevelof118%.

Slovak Telekom achieved an estimated market share of 34% in terms of revenue at the end of 2011. The estimated total volume of mobile market revenuein2010wasalmostEUR1.36billion,whichisanalmostidenticalvalue compared to 2010. Negative developments came mainly from a slow-down of economic growth, and customers’ efforts to reduce consumption andoptimizemobileservicesexpendituresinallmarketsegments.Grow-ing competition in the market resulted in a general market price decrease and a more attractive offering of voice and data packages to customers. A reduction of interconnection fees charged among operators on a wholesale basis and a decrease in revenue from roaming as a result of price regula-tionandlessvoicetrafficwereothercauses.

In contrast, continuing customer migration to the invoiced services seg-ment, and growing penetration of mobile data services, were the main areas of revenue growth in the mobile market. In 2011, Slovak Telekom achievedtotalrevenueofEUR470millioninthemobilesegment,withayear-on-yeardecreaseof6%.

Trend in Penetration of Mobile Market Services in2008-2011

SpecificationofMobileMarketRevenues in2010(%)

Source: Slovak Telekom, a.s., Orange Slovensko, a. s., and Telefónica O2, a. s.

Slovak Telekom

Orange Slovensko

Telefónica O2

54%

2008

104%106%

114%

118%

2009 2010 2011

34%

12%

Telecommunications Market in Slovakia Telecommunications Market Development |28

Digital and Interactive Content Services

In digital and interactive content services, Slovak Telekom operates in the marketofbothpaidtelevisionand,viatheZoznamandZoznamMobilesubsidiaries,onlineinternetservices.Inadditiontoexpandingtheexisting(traditionalportal)services,onekeycharacteristicfeatureofZoznamandZoznamMobileoperationsinonlineserviceswastheintroductionofnewservices strongly orientated to mobile internet and television. Free.sk (a content-sharingplatform)hasbeenaleaderinuser-generatedcontentamong local competitors in the Slovak online market, not taking into account the international online giants. At the turn of 2010 and 2011, coop-eration within the Slovak Telekom Group enabled customers accessing the content of portals Free.sk and Topky.sk also on their television screens via the Magio and Magio Sat digital television service. With the launch of the Telkac.sk portal, providing direct connection with Magio television, we are presenting the market a vision of interactive connection between the worlds of both online and mobile with television services.

Inthepaidtelevisionmarket,thetrendofdigitizinganalogueterrestrialbroadcast was a key topic, and the primary motor of satellite television’s growth for the last two years. Slovak Telekom continued developing its Magioservice;besidesexpandingitscustomerbaseandaddingnewfunc-tionalities,Magiobecamemoreinteractive,andhasmaintaineditsprofileas the leading digital entertainment and interactive content service of the future. At the end of 2010, digital television from Slovak Telekom, under the namesMagioandMagioSat,hadmorethan160,000customers.

Data and Information-Communication ServicesAgain in 2011, Slovak Telekom retained its position as a leader on the market of data services for business clients. On the growing market of ICT services, in which IT and data communication services are converging as they are in the home entertainment market, the Company has concen-trated on providing comprehensive ICT services with added value for big corporations. The majority stake in PosAm has enabled Slovak Telekom to implement its long-term strategy of providing comprehensive communica-tion solutions to business customers.

Slovak Telekom Group StrategySlovak Telekom’s strategy is linked to the global strategy of its parent com-pany Deutsche Telekom, whose vision is to be a global leader connecting people in their lives and work. A long-term ambition of Slovak Telekom is to be the No. 1 player on the telecommunications and IT services market inSlovakia.Thecommonfactoristhemobilizationofpersonal,socialandbusinesscontactsthroughfixedandmobilenetworks.

In the last three years, the Slovak Telekom Group enhanced its service portfoliobyexpandingintonewandgrowingmarkets(online,TVandITservices)inordertodiversifythesourcesofrevenuefromareasofdeclineto growth areas. Therefore, Slovak Telekom’s mid-term strategy for the fol-lowing 4-5 years is based on four pillars, the objective of which is to retain the value of basic voice services so that growth in the Company’s revenue in broadband, TV and IT services can continue.

Thefirstpillarisbasedonincreasingthevalueofsubscribedmobileservice customers with the lowest possible decrease in the invoiced service value,andonacquiringpre-paidcustomersinpartthroughextensivesalesanddistributionnetworksofothercompanies(e.g.hypermarkets)and

co-branding with the Disney corporation. The combination of the T-Mobile and T-Com brands, and the creation of the new Telekom brand, under the “heading”ofonecompany–SlovakTelekom–openedupthepossibilityofenjoyingthebenefitsofcombinedfixedandmobileproductpackages.TheCompanyendeavourstofurtherextendthescopeandincreasethenumberofmobileservicesutilizedpercustomer,forexampleviacross-selling,suchasthesaleofmobilevoiceservicestofixedvoiceserviceorinternetservicecustomers.

Inthefixedvoicesegment,SlovakTelekomwillretainitsfocusonfosteringcustomer loyalty by active customer relationship management and sup-portingcustomers’positiveexperiencewiththeRodinnálinka(FamilyLine)plans.Extensionoftheportfoliowithconvergedfixed-mobilevoiceservices,trafficstimulationwithintheSTnetworkandgradualmigrationtovoiceservicesviabroadbandwillrequirethebuildingofsufficientresidentialbroadband access coverage.

The area of broadband internet and paid television access is included in the second pillar. The objective for 2012 is to improve the position in the mobile broadband segment, which the Company intends to achieve primar-ilythroughextendingthe3Gnetworkandincreasingitsspeed,increasingsalesofintelligenttelephonescapableofinternetaccess,optimizingtheproductportfolioincludingvalue-addedservices,andbyefficientlyusinganintegratedsalesapproachtocustomers.Concerningfixedbroadband,theCompanywillfocusonmaximizingopticalnetworkusagethrougharegional customer acquisition model and cross-selling to mobile services customers.TheCompanyintendstoexploitthepotentialofruralareasoutsidetheexistingfixedmetallicnetworkcoveragebyofferingcombined,cost-efficientmobileandwirelesssolutions.

The enhanced IPTV portfolio in 2011 with its value-added features will continue in 2012. However, emphasis will be laid on satellite television, includinganexpandedchanneloffering(withHDandpremiumpackages)and interactive internet and home entertainment features. The Company’s goal is to increase the number of customers that use TV together with other services through targeted cross-selling.

The third pillar of the Company’s strategy for the upcoming years is based on the growth in provided IT services and new services “beyond the limits oftraditionaltelecommunicationsservices”.Theareasofplannedrevenuegrowth in IT services comprise cooperation with IT partners and provision of the Company’s own IT solutions related to telecommunications services. Areas of IT services development also include synergies with the subsidiary PosAminmanagedITsolutionsand“cloud”solutions,customerapplica-tions development and outsourcing.

TheobjectiveofthefourthandfinalpillaristoimprovetheCompany’sperformance with integration synergies within the Slovak Telekom Group. Emphasiswillbeplacedonreducingoperatingexpensesandamoreef-ficientuseofcapitalinvestmentsininformationtechnologiesandfixedandmobile networks.

Increasedcostefficiencyinthefieldoftechnologieswillenableagraduallesseningofinfrastructurecomplexity,systemconsolidationandretirementof outdated or unsupported platforms.

Telecommunications Market in Slovakia Telecommunications Market Development | 29

Report of the Company‘s Management

31 Services and Products

39 InformationTechnology:AStableBaseforDynamicChanges

41 Human Resources as a Partner in Business

44 Communication:PathwaytoSuccessforEmployees,CustomersandPublic

53 Corporate Responsibility

III

Services and Products

The Slovak Telekom Group provides its customers with a broad portfolio of fixedandmobilenetworkservices,makesuseofanumberofbroadbandand wireless technologies, sells end user equipment and also supplies call centre services. Thanks to its subsidiaries, it has a strong position in thesegmentsofinternetcontent(ZoznamandZoznamMobile)andICTservicesandsolutions(PosAm).

In 2011, the Slovak Telekom Group maintained its leading position in the telecommunicationsmarket,thoughthewholemarketischaracterizedbyahighpenetrationoffixedandmobileservices.Adeclineinvoiceserviceswascompensatedbythegrowingtrafficandnumberoffixedandmobilenetwork users of data services. Non-voice earnings tended toward an increasing share of revenues, and new uses were found for content services onotherplatforms.2011wassignificantforthesegmentoftelevisionservicesduetodigitalization,butalsothankstoestablishingtheMagioplat-formonthreetechnologies–metallicandfibrenetworksandthesatellite.

Theinternetcontentsegmentexperiencedincreasingcontentdemandonmobilephones,reflectedalsointherapidlyincreasingshareofmobilephones in yearly sales. In selected weeks, the share of sales of smart-phonesexceeded70%oftotalsales.

ICT services had an increasing share of revenues thanks to consolidation of the PosAm Company and Slovak Telekom’s own activities, such as opening a state-of-the-art data centre in June.

Report of the Company‘s Management Services and Products | 32

Customer Care Services

The focal point of providing services is a high level of customer satisfaction, formedduringfirstcontactandsolutionofvariousrequirements.Alongwitha widespread sales network, it is telephone contact with customers that playsasignificantrole.

The main activity of the Contact Centres Section is providing services to customers in call centres. Besides phone contact, the section also provides for mail and email communication with customers. At the same time, it alsooperatestheback-office,whichadministersservicesinsystemsandperforms other activities in support of customer care and sales.

Call centres operate several toll free numbers where customers can get any necessary information on Company services and products. Part of thelaunchofthenewbrandofTelekomwasunificationofcustomerlines12345(formobilenetworkservices)and0800123456(fixednetworkservices).ThenewcommonTelekomCustomerLinehasbeenavailabletoallcustomersforfree,sinceOctober2011,at0800123456.

Therewasagradualextensionoftheportfolioofservicesprovidedincallcentres, to give customers the best possible access to information on integrated Company services and, at the same time, to help them make ordersoverthephone.Therewasalsoacontinuingprocessofharmoniza-tion of emergency lines, giving customers technical support for all provided servicesonfixedandmobilenetworks.Integrationandharmonizationalsooccurred on lines for customers to receive information about telephone numbers as well as a wide range of information on culture, transportation, tourism, etc.

Wholesaleservices:SupportforDeveloping Telecommunications Services

Slovak Telekom operates several technologies and, along with the sale of its own services, it is an important player in wholesale services and provid-ingfixedtechnologiestoalternativeoperatorsinthemarket.

IntheintegratedCompany’sfirstyearofexistence,thewholesalesegmentmetandinmanyareasconsiderablyexceededitstasksandgoals;thisre-sultedinexceedingprojectedservicerevenuesfromwholesalepartnersby more than 13% compared to the plan. In 2011, Slovak Telekom continued in development of wholesale telecommunications services, underscoring its position of Slovakia’s comprehensive provider of wholesale services.

The Company focused on innovations of data wholesale solutions, as well as developing cooperation with new wholesale partners. The plan was exceededinbothfundamentalcategoriesofproducts:providingnationaland international voice services, and sale and rental of data services and infrastructure to national and international partners.

Data ServicesThanks to innovations and technical parameter changes (in band width, communicationprotocols,etc.),highquality,andthecommercialcondi-tions for providing data services, the Company managed to prepare inter-esting solutions for its wholesale partners. The greatest success in 2011

wasexperiencedbyEthernettechnologysolutions.RevenuesfromtheCar-rierEthernetserviceexceededplannedrevenuesbymorethan43%.Thenewly prepared service Bitstream Access, with connection at the Ethernet level,willbeavailableforourpartnersovermetallicandfibreinfrastructure.Theserviceenableswholesalepartnerstocollecttrafficoperationsandaccess broadband services through DSL or FTTH/FTTB technologies. That extendedourwholesalepartners’optionsforutilizingourexistinglinestoprovide their own broadband services to end users.

Solutions based on Ethernet technology were also interesting for our international partners. In part because of this, the Company managed to meet the plan of revenues from international data services even despite the continuing decline of international unit prices. Sales of transmission capaci-tiestoUkrainealsocontinuedsuccessfully,withthefocusonbackbonebroadband solutions. Altogether in 2011 there transmission capacities were implemented in the band width of over 30 Gbit/s, thanks to which the volumeofcapacitiessoldtotheUkraineexceeded70Gbit/s.

Voice ServicesInthefieldofnationalvoiceservices,2011wascharacterizedbyintensify-ing cooperation with telecommunications services providers and regulation of internal processes. Care for our partners’ mobile services was assumed directly by the wholesale segment. Partners of the Company were provided with a single point of contact to manage their requests for the comprehen-sive portfolio of services provided. Implementation of the 4-day number portabilityprocesswaspreparedbasedonrequirementsdefinedbytheTelecommunicationsOfficeoftheSlovakRepublic.

There were 25 new partners connected during the year of 2011, increasing to 115 the number of international business partners in international voice services. Opportunities for trading in international transit voice operation (hubbing)overtheSlovakTelekomnetwork,aswellasthepossibilityofacquiringcosteffectiveterminationofoutgoinginternationalvoicetraffic,wereexpanded.Thequalityofourvoicetransitservicewasconfirmedbythefactthatmobiletrafficaccountedforasmuchas80%oftotaltransitoperationsovertheSlovakTelekomnetworkin2011.Utilizationofflexibletrafficroutingthroughpartnersmadeitpossibletoreducecostpreunitforoutgoinginternationalvoicetrafficbyalmost13%.

VoiceServices:StylishInnovationsandDiversePackages

The voice services segment saw a consolidation of monthly calling plans last year. At the same time, however, Slovak Telekom introduced several innovations in prepaid cards and offers for smaller groups of customers, suchaschildrenandstudents.Variousbonuses,flexiblepackages,andthepossibilitytocombineplanservicesinthePodľaseba(MyChoice)bestselling plan format continue to be attractive.

Prepaid CardsInthecourseoftheyear,SlovakTelekomextendeditsofferingwithnewcard types. The biggest innovation was launching Disney collection prepaid cards in March 2011. They are available in two alternatives with different contents:HannahMontanamotifsforgirls,andCarsmoviemotifsforboys.Pricesareuniform,withcalls10centsperminutetoallnetworks,and6


cents per SMS. The card itself is sold in a special package, which contains stickers, tattoos and access for children to special content. The cards are, fromtheverybeginning,blockedforcallstoaudiotextnumbersorotherunsuitable content types. Moreover, in October, Parental Services were introduced for Disney collection prepaid cards, providing parents with an overview of the child’s usage, enabling location tracking and presetting a fixedlistoftelephonenumbers.

In the summer, Slovak Telekom also offered the Easy Free new card, which offers prices similar to the Disney collection cards (calls for 10 cents, SMS for6cents),withthetraditionalEasydesign.

Fix PlansFixplansremainthestandardpartoftheportfolio,offeringaspecialcom-bination of monthly calling plans with fees but with the attribute of credit. This is drawn as necessary depending on the use of selected services, i.e. charges for calls, SMS, data or content services are made against the credit.Therearefourplansintheportfolio:Fix0,9,12and16,thebiggerplanshavingvariousbenefits,suchasextracredit.

Monthly plans (mobile network)Theofferingincludesseveraltypesofcallingplans:Bezzáväzkov(NoObligations)andProgram40forcustomerswiththeleastneeds,standardRelaxandViacplans,andthefamilyofPodľasebaflexibleplans.

ThefourvariantsofPodľaseba(1,3,5and7,dependingonthenumberofpackages)weregraduallyenhanced.SlovakTelekomintroducedseveralpackages,suchas80SMSor1,000freeminutesofcallsduringtheday,invariousofferswiththesameprinciple:customerschooseand,ifnecessary,change services in the plan, using packages containing various quantities of free minutes, cheaper calls, SMS and data.

The Christmas offering gave customers the chance to get some money backincashorinanextraservicespackage.Atthesametime,planschangedtoPodľasebaNaj,withtheofferfeaturingnewpackagessuchasfreeSMS,Neobmedzenýmobilnýinternet(Unlimitedmobileinternet)orNeobmedzenévolaniavečeravíkend(Unlimitedeveningandweekendcalls)tothefixedandmobilenetwork.AlsotheadditionalserviceVolanianajbližším(CallstoMyPeople)becameverypopular–offeringunlimitedcalls, SMS and MMS to three numbers in the Telekom network.

At the beginning of the new school year, in September, Slovak Telekom launchedaninnovation:Študentskýpaušál(StudentPlan).Forthis,thereisno standard monthly fee, and students pay only for the services used. Each SMScosts6cents,andcallsarechargedprogressively:thefirst100min-utes at 13 cents per minute, and starting with the 101st minute the charge is6centstoallnetworks.StudentsalsogettheInternetvmobile500(Internetinmobilephone500)forfreeforthefirst12months.Moreover,there are discounted Sony Ericsson, HTC or Apple smartphones offered with the plan.

Discounted phones for mobile plans Overthelastyear,SlovakTelekomlauncheddozensofphonesofvari-ous world-known brands. Out of the most successful models, it is worth mentioning the Nokia C5 and C5-03, the entire Sony Ericsson Xperia range including the Xperia Play model for gamers, Samsung’s Star II, and special brandphoneHelloKitty,theLGP690andT500,andtheHTCWildfireS.

Therewerealsoseveralflagshipmodelsintroduced:theNokiaN9,SonyEricssonXperiaArcS,SamsungGalaxySII,LGOptimus3D,HTCDesireSand iPhone 4S.

In June 2011, Slovak Telekom started its initiative of offering the biggest rangeofEUR1phonesandmodelsinthemarket.Thisapproachalsobecame the leitmotif of the summer campaign, with the offering includ-ing both new models and older best sellers that had no successors and customers still interested in them.

Several changes occurred in sales of discounted phones in 2011; the largest is a trend towards smartphones in the offering and their gradually increasing share of total phone sales.

RoamingThe roaming offering includes best practices from the past, such as Euro roaming(withstandardEurotariffprices)andRoamingPlus(offeringlowerratesandfreeincomingcallsinselectedholidaydestinations).Atthesametime,anewplancalledEU-roamingwasintroduced,withloweroutgoingcall prices.

Monthly plans (fixed network)In 2011, Slovak Telekom offered several discounts on plans for those with residential voice plans in special offers or lower monthly fees.

Inthesummer,so-calleddoubleversionsofthefavouriteplansDomaUni20,DomaUni60andDomaMaxiwerelaunched;theycontaindoublefreeminutes for a certain surcharge, and offer a better alternative for customers who want to call more and get a better price per minute.

ThereweretwopackagesofVýhodnévolaniadozahraničia(CheapCallsAbroad)(with30or50minutes)introducedfortheRodinnálinka(FamilyLine)plans,callstomobilenumbersfor9centsperminute,andtheVolámespolu(WeCallEachOther)service,withunlimitedcallstoonenumberforamonthlyfee(50centsinthisspecialoffer).

InternetService:FasterPlansandParentalService

In2011,newextensionsfor3Gnetworks(increaseofthedownloadto21andlaterto42Mbps,andincreaseoftheuploadto5.8Mbps)wereintroducedandimplementedtotheproductportfolio.Maximumspeedforparticular mobile internet plans changed several times and also the internet accessplansformobilephoneschanged.Theportfoliooffixedinternetconnection remained in its established form with a minimum number of changes. In August, Slovak Telekom introduced Parental Control for both portfolios, and has been educating parents about setting a necessary level ofprotectionfortheirchildren’ssurfing,orencouragingthemtogodiscussinternet content together.

Tablet computers are another important area, showing up more and more in special offers or in combination with buying Mobile Internet.


Mobile InternetTwogroupsofplansremainintheoffering–Unlimitedmobileinternethas gradually gained ground and became increasingly popular among users.Therearethreeplanswithbasicpackagesizes,allowingbasicdatadownloads with speeds of up to 42 Mbps, and then speed is reduced with noextrachargeforfurtherdata.

Thesecondgroupiscomposedofclassicdataplanswithfixeddatavol-umes:Mobileinternet500,2,000,5,000,10,000and20,000MB.Progres-sivemaximumspeedsofupto42Mbpsalsoappliestothesepackages,anddataabovethelimitcanbedownloadedforspecifiedfees.

TheportfoliostillcontainsthepopularMobileinternetEUR0,provid-ingmobileinternetuptothemaximumspeedwithoutmonthlyfees.Itischarged as usage on prepaid cards, i.e. data is drawn from the credit on the SIM card; customers top up their credit when necessary. During selected periods, Telekom also offered the possibility of bonus data – a larger data quantity at the same price.

Internet v mobile (Internet in the mobile)Significantchangesweremadeinmobilesurfingplans.Theoriginalfamilyofweb’n’walkplanswasmodified;firstinFebruaryandthen,inSeptember,a brand new offering was presented. The range of Internet in the mobile planssimplifiedtheoffering,withthreeplansbasedondataneedandsizeand broken down by customer group. Internet v mobile 100 is intended for occasionalusers,Internetvmobile500willsufficemanyfirst-timesmart-phonecustomers,andNeobmedzenýmobilnýinternet(Unlimitedmobileinternet)isdesignedforexperiencedordemandingcustomers(itcomeswith2,000MBofdatadownloadsatfullspeedand,afterexceedingthatlimit,slowsdownwithnofurtherdatatransmissioncharge).

AnewservicewaslaunchedinthesecondhalfofJanuary:web’n’walk25forEasycardsandFixplans.Itprovidesclientswitha7-daypackageof25MBofdataforEUR0.99.ItcanalsobeactivatedfortheEasyFreenewcardand for Disney collection prepaid cards.

Data roamingThelaunchofTravel&Surfsetofplansforsurfingabroad,wasanimportantinnovation. It comes from a shared initiative of Deutsche Telekom and offersthreeplans:adaypackagewith5MBofdata,aweekpackagewith20MBofdata,andaweekpackagewith80MB,withdownloadspeedreducedafterexceedingthelimitbutwithnofurtherchargefordata.

Navigation via mobile phoneSlovak Telekom started offering a new service – Navigácia Sygic GPS (SygicGPSnavigation).Thisexclusiveservicegivescustomersachoiceoftwo map packages to download to their mobile phones (either maps of four countries–Slovakia,theCzechRepublic,HungaryandAustria–ormapsofallofEurope)andusethemontheirsmartphonesforalowmonthlyfee(EUR1.39forthefour-countrypackage,andEUR2.39forallofEurope).Customerscanusethisflexibleservicewithnocontractualobligationandcan try it out for a 14-day test. Then they can use navigation right in their phones, together with a lane assistant, 3D maps, online information about townsandweatherandevennavigationinSlovakiathatincludestrafficinformation.

Itisthefirsttimetheoperator,incooperationwiththeserviceoriginator,offers the service directly to its customers.

Fixed broadband internetThere were several changes implemented in the portfolio of Magio internet plans(forDSLusers),orOptikinternet(forusersontheopticnetwork).

SinceFebruary,theTurbo2plan(aswellastheSoloversion)hasbeenpro-viding 2 GB of data for transmission at full speed. Turbo 3 has had upload speed increased to 512 kbps.

Parameters of plans also changed in the Optik internet portfolio. In August, FUPwascancelledfortheplans,anduploadspeedwasincreasedto8,192kbps. For the Optik 2 plan download speed increased to 30 Mbps, and for theOptik3planitincreasedtoasmuchas60Mbps.

There were several special offers introduced during the year; customers couldgetinternetplansforEUR8.99orEUR6.99permonth,orthroughaspecial limited-time offer could get free internet connection until the end of the year. With the plans it is also possible to use combinations of selected services,andgetDUOorTRIOdiscountsformonthlyfeesforservices.

Discounted equipment During 2011, Slovak Telekom introduced several new modems to both mobile internet technologies. The Company continued developing new hardware for the FLASH-OFDM technology and introduced two Leadtek Wi-Firouters.Fornewextensionson3Gnetworks(HSPA+21and42Mbps),theCompanyintroducedseveralnewmodemssupportingHuaweimaximumspeed.

In the course of the year, Slovak Telekom also offered several discounts on notebooks and tablets to internet plan customers. In the spring campaign customerscouldgetadiscountofuptoEUR100;inAugustandDecemberthere were tablets and notebooks offered for selected plans, with prices startingatEUR1.InthiswaytootheCompanyhopestoencouragecustom-ers to buy new equipment and use its services.

The offering has started to feature tablets sold primarily for data plans. At thebeginningoftheyeartheoriginalmodelSamsungGalaxyTab(with7-inchscreen)wasoffered,withtheAsusTransfomerofferedinthesummerandSamsungGalaxyTab10.1attheendoftheyear.

BusinessCustomersPortfolio:BiggerPackagesandExclusiveServices

Orientation on business customers continued in two directions in 2011. Along with tailor-made solutions, the offer included several proven services enhancedbynewtypesofbenefits.

Mobile networksTherewasagroupofPodnikateľ(Businessman)mobileserviceplansprepared for self-employed people and small businesses, gradually supple-mented with other components and offering the possibility to put together a comprehensive package of services for a uniform monthly fee. The basic componentisapackageoffreeminutestoallnetworksinSlovakia,theEUandtheUSA.Theplanalsocontainsadatapackage(ortheBlackBerryservice),freeSMS,andUnlimitedcallspackagesatcertaintimes(peak,off-peak,non-stop).Thatapproachis,aswiththeofferingforindividuals,fa-vourable from the viewpoint of individual customer needs and preferences, combining plans as they choose. Over the year there were several special Podnikateľplanoffersintroduced,allowingcustomerstoreceiveextraservicesforthesamepriceorevencashofuptoEUR300intheChristmascampaign.


Forsmallandmediumenterprises,twoplansareoffered:Firma(Company)andFirmaExtra(CompanyExtra),inwhichemployeesuseasharedcallingplan and more favourable prices of calls to networks in Slovakia and the CzechRepublic.

Business customers have traditionally had a strong demand for the offer ofroamingservicestoo.AlongwiththeexistingofferingofEuroroaming,RoamingPlusornewEU-roamingservices(offeredfirsttobusinessclientsandonlylatertoothergroupsofcustomers),customersmayalsousetwoexclusiveservices.Smartroaming,asapartofthemonthlyfee,makesitpossible to receive calls in mobile networks of European operators in the Deutsche Telekom Group for free, and send SMS and MMS messages the same price.

InJune,anewservicewaslaunched:Podnikateľroaming,givingcustomerscheaper calling prices in more than 50 countries. Those countries form a specialzone,wherethefollowingchargingsystemapplies:thefirstminuteis charged at the standard rate for outgoing calls in the country, and start-ing with the 2nd minute the uniform price of 13 cents per minute applies.

Fixed networksThe Business line plans are the main offering for self-employed people and smallbusinesses.Optionalcallingplanscombinefreeminutestofixedandmobilenetworksandareintendedforactivecustomers.BiznisUni50andBiznisUni150canbeselectedinthreevariations:withcontractperiodof12 or 24 months at a discount or with doubled free minutes. A strong posi-tionintheofferinghasbeentakenupbytheplansBiznisMesto(BusinessCity)andBiznisSlovensko(BusinessSlovakia)withunlimitedcalls.Ifthecustomer calling plan contains no free minutes to mobile networks, they canmakecheapercallstothemforaslittleas6centsperminute.

Another comprehensive solution for small enterprises and self-employed peopleisBenefit,whichcombinesvoiceservices,DSLconnectiontotheinternet,andthefunctionsofamodernbranchexchange.Besidesfreeun-limitedcallstofixednetworksinSlovakiaandabroad,italsoofferscheapercallstomobilenetworksandfunctionssuchasvirtualoffice,synchronizingwith MS Outlook, etc. It is available in several alternatives depending on the numberofusers:BenefitStartforasingleuser,Lightfortwo,OptimalforfourandBenefitIntensiveforeightusers.

TVServices:BreakthroughYearontheDigitalTelevision Market

In2011,Slovakia’stelevisionmarketwasdominatedbythefinalprocessoftelevisionbroadcastingdigitalization,which,despitegrowingcompetition,saw further growth. The satellite version presented last year helped Magio gain ground even in less densely populated areas such as rural areas or remote settlements, with the product also gaining ground in urban locations with metallic and optic lines. Slovak Telekom is thus the only operator in Slovakia that provides digital television on all three platforms and, thanks tothat,thetotalnumberofMagiocustomersalreadyexceeded150,000inJune.

In the course of the year, Slovak Telekom continued adding the interactive functionsandenhancementstotheuserexperiencethathavelongdefinedMagio television. The mCore IPTV platform upgrade was an important step that made it possible, to offer even more sophisticated applications in 2011 based on direct interaction with viewers. Further innovations focused on adaptations to the television grid based on viewing statistics, and improving the content on demand. Current movie hits of two Hollywood studios were added to the video rentals, and customers can now also use the television broadcastarchive.Also,thechoiceofhighdefinitionchannelswasex-panded by a free package of 10 channels in HD resolution for customers on the optic network. The signal of most of these channels comes directly from thebroadcasterinHDqualityof1920x1080i,thankstowhichcustomerscanenjoythemaximumpossibleaudiovisualquality.

TheaforementionedupgradeoftheMagioIPTVplatform(mCore)toalaterversion made it possible to develop unique applications for IPTV set-top boxesbuiltonthenewframework.Thisalsobroughtinnewfunctions,suchassendingnotificationsandmessagestocustomerstoset-topboxes.InordertoutilizetheIPTVplatform’snewpossibilities,therewasanadditionalneed to upgrade the application framework, which currently provides plat-form for applications such as Magio Portal, Web EPG, Mobile EPG, Magio Store, Games, etc.

The increasingly frequent combination of the worlds of television and internetwasreflectedinthedeploymentofthelargestsocialnetwork’sapplication.UsingtheFacebookapplicationMagioTVcustomerscanviewposts, send comments, and add Likes, all using their TV remote control. Theapplicationenablesthemtosetupmultipleuserprofiles,soinhouse-holds with several Facebook users, each of them can have his or her own account.

A long-awaited service under the common name Spustenie programu od začiatku(Playingtheprogrammefromthebeginning)andMagioarchive(MagioArchive)providedcustomerswiththefunctionofplayingapro-gramme in progress by rewinding it and viewing TV programmes already broadcast. This function automatically records selected TV channels so that it is possible to view them even 7 days back.

Magio TV can proudly announce it is the only one in Slovakia to add a second“major”studiotoitsmoviesondemandoffering.MoviehitsfromUniversalwerecomplementedbyworksproducedbyanotherfamousHollywoodstudio:WaltDisney.Magioviewerscanthusenjoythelatestnewmovies at the same time they are released on DVD or Blu-ray.

Report of the Company‘s Management Services and Products |36

Development of Mobile Content, Premium BusinessandOnline:IntegrationofThreeScreens

In2011,inthefieldofpremium,content,entertainment,paymentandad-vertising services, Slovak Telekom developed a successful project started backin2010,calledDigitalLifeCenter(DLC).Thismanagerialentitycontinued the process of consolidating business on the three screens, for cross-selling and up-selling among the respective environments. As early as 2010, customers could use many services on their PCs on the internet (on theZoznamportal)andontheirmobilephones,andseveralserviceswereeven added to televisions thanks to Magio TV.

Mobile phones have increasingly taken on the role of remote control for severalenvironment(screens),includingthefunctionofelectronicwalletinvarious environments (with especially huge growth online, i.e. via the inter-net).Atthesametime,newbusinessfields,suchasmobileadvertising,arecomingrightintomobilephones,diversifyingtheexistingmobilebusiness.

Another very important tendency that has continued for three years now is the increase in regular accesses to the internet using mobile phones; along with special website adaptations for mobile phones, certain internet services had come even to TV screens before the end of 2011 (e.g. various applications enabling controlling community internet services through the TVscreenfromthecomfortofthelivingroom).

AsuccessoftheDLCconceptin2011wasalsoreflectedinfinancialper-formance–revenuesforthoseservices,includingZoznam,exceededEUR35 million, which is more than 5% growth compared to overall performance in 2010.

Telekom online and mobile phonesIn 2011, company intensively worked on preparation of on the integrated andunifiedwebsitewww.telekom.sk,whichinOctoberputtogether,witha new visual and in one place, all functions of the original web sites www.t-com.sk and www.t-mobile.sk. The process resulted in a successful and full-scale integration of e-shops, e-care services and info services, without any operational downtime. The more than one million average unique visitors per month after the integration indicates that customers are also appreciat-ing Telekom’s new electronic headquarters. The best proof of this is the significanttwo-digitincreaseofthee-shopshareoftotalCompanysalesinthe crucially important fourth quarter.

At the end of the last year, the beta version of an e-shop intended for access over mobile phones was also prepared; the web site gained functions such as operator chat, so that customers could use other communication options in an easy and integrated manner.

Payment through mobile phonesThe development of the new role of mobile phones as a convenient means of payment for consumer goods, without the need of a bank account and with a direct payment to the mobile operator, continued in 2011. There was an increasing tendency in customer interest, the number of services in the portfolio and revenues.

Forexample,inthefieldoftransportation,theserviceofsellingpublictransportticketswasextendedtosmallertowns,andpayingforparkingby SMS is available in almost ten towns in Slovakia now. It is possible to buy more and more small products by sending an SMS. SMS payments on theinternetexperiencedsubstantialgrowth,especiallyafterlaunchingthe“platbamobilom.sk”project,enablingownersofvariouse-shopstoimple-

ment the automated payment system very easily.

Aspecificandimportantsubcategoryofmicromobilepaymentsisgam-bling. In cooperation with Tipos, we continued in 2011 to support SMS bet-tingprojects.TheWorldIceHockeyChampionshipwasaspecificprojectlast year that enabled customers to bet on results of hockey matches on their mobile phones.

Mobile advertising Thisisanewarea,ontheonehandlackinginmarketstandardization,withlarge barriers in Slovak legislation and overall awareness among business users;howeverontheotherhanditexperiencedsignificantprogressin2011. Little by little, several campaigns were carried out using direct chan-nels(SMS),aswellasmobileportals(wap,web’n’walk,banners,linksandsub-sitesonZoznam).SlovakTelekomalsoadaptedandmodernizedaserviceforutilizingSMSadvertising(Advertisinginfochannel),withalmosthalf a million active registered users at the end of the year.

Sales and demand on the market grew gradually; there were almost 50 campaigns run during 2011. The potential of this area overall is still in the future, and it may later become a new and important source of revenues for Slovak Telekom.

InternetContentServices: AStrongYearforZoznam.sk

AwholerangeofchangesoccurredontheZoznaminternetportal,aDLCactivity.Zoznamwas,ingeneral,successfulinfinancialfield;itrecordedex-cellent revenue growth compared to 2010 and a more than 50% increase of EBITDA. The number of visitors also increased compared to 2010.

Zoznam.skisoneofthestrongestrepresentativesontheSlovakinternet,providinguserswithseveraldozenwebsites.TheZoznam.skportalisamong the most popular. The second most popular was the news portal Topky.sk; and among the most commonly used products is the web search for information, in the catalogue of corporate sites and phone numbers. A range of entertaining and educational information is offered by the follow-ingmagazines:Feminity.sk,Dromedár.sk,Autoviny.sk,oŽene.sk,oPeni-azoch.sk,Baby-web.sk,andthelatestaddition:PlníElánu.sk.

OnZoznam,userscanfindothersitesfullofusefulinformationanddata,suchasSlovníky(Dictionaries),thePauzička(ShortBreak)entertainmentportal where they spent 294,374 hours playing games in 2011, and the job portal Kariéra.sk, which is has the fastest-growing visitor rate out of the entire product portfolio.

Atthebeginningoftheyear,Zoznam.skpresentedaninnovatedmapsolu-tion with a brand new design and functionality. The new mapa.sk takes into accountalluser-relevantcriteriaandexpectations,suchasconvenientuse,transparent design, and logical arrangement of controls. The name of the domain changed too; the original Kompas.sk changed to the more intuitive and easy-to-remember mapa.sk.

Changesoccurredinallcontentmagazines,whicharetakingoncommonfeatures and unifying components. Thanks to colour scheme and other details,however,eachofthemretainsitsowncharacter.In2011,Zoznam.


skredesignedthelifestylemagazineFeminity.sk,newsportalTopky.skandtravelmagazineDromedár.sk.Alongwithmagazines,thefrontpageofZoznam,Kariéra.skjobportal,Hudba.sk,andimhd.sk(themostcomprehensiveportalofmunicipalpublictransport),havelikewisebeenredesigned.

Anotherproductinnovationworthemphasizingisthegroupshoppingportal BOOMER.sk, bringing out discounts of more than 50% every day. It is the philosophy of the brand to offer products interesting for both retailers and consumers. In the case of group shopping, what matters most is satis-faction of clients with the quality of products and services, along with the price. Therefore, the goal of the product is to maintain the quality standards expected.

Zoznam.skexpandeditscontentoffering,addingaportalabouthard-ware,softwareandITnews:pc.sk.Thistechnologymagazinecomeswithdetailedreviewsofcomputercomponents,peripherals,expertarticlesandthe latest tests of mobile phones.

IncooperationwithDeutscheTelekom,Zoznamlaunchedaninternet-based computer games shop with in Slovakia, enabling legal downloading of computer games. Gamesload offers unique access to PC games with no waiting for delivery. Games are available immediately after payment and downloading to the computer.

In2011,ZoznamlaunchedanewTVchannelcalledTelkáč.sk–apersonal-izedonlinetelevisionstationwithsimplesettingsandtransparentcontrol.The online TV program www.telkac.sk also provides users with the possibil-ityofremotesetupforrecodingfavouriteprogrammesontheMagioBox,setting e-mail reminders for viewing shows, and the possibility to assess andrecommendshowsthroughsocialnetworks(Facebook,Google+).Remote recording to Magio is also available using the iPhone Magio TV ap-plication,whichbecamethewinningprojectatthefirstmobileapplicationscompetition,Appsrulezz2011.

ZoznamanditspartnerwasthefirstofSlovakia’slargestinternetplayerstooffer electronic books, with a special application (Raj kníh/Book Paradise project)thatmakesitpossibletobuybooksoverbymobilephoneandSMS.

Attheendoftheyear,theZoznam.skinternetportaladdedtwoinnova-tions to its product portfolio, intended to contribute to further growth. The magazinestartupPlníElánu.skfillsanicheinSlovakia’sinternetforafastgrowing segment of users above 40 years of age. The second product is

Dopytovač.sk,anewplatformbuiltonthebaseofZoznamKatalóg(ZoznamCatalogue),whichfacilitatescommunicationofclientswiththeirsuppliersamong small and medium enterprises.

ICT Services as Growth Potential

TheICTmarketin2011couldbecharacterizedbymodestrecoveryandslowly-growingexpenditure,andanevenstrongerinclinationtowardsef-fectiveness. Companies need to focus on their core business activity, and thereforeexpectICTtoprovidethem,aboveall,withflexibility,dynamicsand savings in the current economic situation. ICT resources are copying the current requirements of corporate processes, in order to avoid slow-downsorunjustifiedcosts.OnewordheardmoreandmorefrequentlywasCloud computing, a new means of providing ICT services on demand.

After incorporating the PosAm Company (an important provider of applica-tion solutions, services and infrastructure solutions to corporate custom-ers),intotheSlovakTelekomGroup,theCompanyfocusedonexploitingsynergy effects and accomplishing its process of transformation into a comprehensive ICT operator. A separate ICT Service Section was estab-lished at Slovak Telekom; it is responsible for development, preparation and implementation of customer solutions.

From that perspective, the most important event was the June opening of Slovak Telekom’s state-of-the-art data centre in Bratislava, in Varšavska Street. The unique 5-story building was, from the very beginning, designed with an emphasis on the highest technology, security and environmental standards.TelekomDataCentreisfilledwiththelatesttechnology,meetingGREEN IT requirements, which under continuous operation brings substan-tial savings of electricity for cooling and connection. More than 40% of the newdatacentre’sareawasoccupiedlessthan6monthsafteritsopen-ing;amongthefirstcustomerswereVÚBBankandAllianz–Slovenskápoistovňa.

Telekom Data Centre project comes in at a very suitable time, underlin-ing the long-term strategy of Slovak Telekom to provide a comprehensive portfolio of ICT services with added value. The new data centre has created opportunities for scalable services, from a simple server housing to cloud computing, and comprehensive solutions containing our customers’ Busi-ness continuity plans and Disaster recovery plans. Along with the possibility to order data connection from Slovak Telekom, the wide array of solutions has the goal of attracting not only large companies but also small and medium enterprises, for which data centre outsourcing is an ideal way to resolve their info-communications needs

Report of the Company‘s Management Services and Products |38

ICT Solutions by PosAm

PosAm designs, implements and operates its own services, and application orinfrastructuresolutions,inkeybusinesssegments.Theprincipalbenefitfor customers rests in increasing the effectiveness of both main and sup-porting processes. The Company offers its services to several segments.

BanksPosAm provides solutions aimed at supporting main processes, such as mortgage loans, VIP clients, corporate clients, and supporting processes related to preparation of budgets, central purchasing, asset management, document lifecycle management and identity management. As a part of its comprehensive customer care, PosAm provides full IT operation and SWdevelopmentonanoutsourcingbasis.References:Citibanka.s.,DexiabankaSlovenskoa.s.,Slovenskásporiteľňaa.s.,Tatrabankaa.s.,VÚBa.s.and other companies.

Financial Institutions and Insurance Companies Solutions for insurance companies support mobile sales through sales representatives, Customer Relationship Management and the issue of insuredeventshandling.Coveringthesemainprocessessignificantlycontributes to innovations in the sales network management, fast introduc-tion of new insurance product sales, and increase of customer satisfaction andloyalty.References:AEGONŽivotnápoisťovňaa.s.,Allianz–Slovenskápoisťovňaa.s.,UNIQApoisťovňaa.s.,Unionzdravotnápoisťovňaa.s.andother companies.

Manufacturing and Network Industries In this segment, PosAm focuses primarily on providing operating services, outsourcing and development of applications supporting controlling, main and support processes. Domain knowledge guarantees a high level of professionalism in providing services and development of tailor-made applications.References:ČEZ,a.s.,Jadrováavyraďovaciaspoločnosť,a.s.,KIAMotorsSlovakias.r.o.,Rajoa.s.,Siemenss.r.o.,Slovenskáeketrizačnáa prenosová sústava, a.s., Slovenská pošta, a.s., Topvar, a.s., Volkswagen Slovakia a.s. and other companies.

Telecommunications and MediaThis business group focuses on consolidation of infrastructure, applications and value added services.

Public Administration In the public administration and local government segment, PosAm has, in the long-term, focused on software development of support to main pro-cesses and providing operating services. Budgeting in state administration isakeyprocessmanagedbyasolutionofPosAm:thebudgetinformationsystem(RIS),anecessarypreconditionforthestatetreasury’soperation.

PosAmhasalsobeenactiveinthefieldofhealthcare,whereitimplement-ed solutions for health registers, terminology and secure communication among health care providers and health insurance companies.

PosAm Infrastructure SolutionsPosAm designs, implements, operates and performs servicing of separate or integrated infrastructure features, with the main focus on the consolida-tion of information systems. Infrastructure solutions also include application delivery,storage,backup,archiving,virtualizations,designandimplemen-tation of security features for access to the internet, corporate knowhow and information. PosAm uses progressive technologies from its partners – CiscoSystems,Citrix,HitachiDataSystems,Hewlett-Packard,IBM,Lenovo,Microsoft, Oracle and VMware.

PosAm Application SolutionsDeploymentofapplicationsolutionsprovidescustomerswithbenefitsas they work to make their corporate processes, internal communication andknowledgemanagementmoreefficient.Solutionsmustbeflexibleand long-term in nature, thanks to open standards. Through continuous improvements in domain and technology knowledge, PosAm supports the entire lifecycle of applications, from design through operation. .


For networks and information technologies the year of 2011 was very dynamic,characterizedparticularlybypost-integrationactivities.Importantstepstakenincludedorganizationalmergersofnetworkdivisions,integra-tionoftheinterconnectionfeessysteminthefixedandmobilenetworks,integrationofSAPaccountingmodulesintheformerfixedandmobiledivisions into a single whole, and technology integration for routing calls to contact centers. During the year the process of further strengthening of ICT area continued as well, with the opening of the new Telekom Data Centre, and establishing a portfolio of ICT products and services in the new ICT services section in cooperation with marketing. These activities were per-formedwithastrongemphasisonsatisfactionofinternalandexternalcus-tomersandefficientuseoffinancialandnon-financialresources,changesof operation models and launching of many transformation initiatives.

Inthefieldoftechnologies,thecompanyfocusedprimarilyonlaunchingsignificantlylarger3Gnetworkcoverageand,atthesametime,introducingnewHSPA+extensionswithspeedsof21or42Mbps.Theuploadspeedincreasedto5.8Mbps.Atechnologytestuniqueintheworldwasalsocar-riedout.Finally,acontinuingextensionofopticnetworkcoverageinnewlocations is in progress.

InformationTechnology: A Stable Base for Dynamic Changes

Report of the Company‘s Management Information Technology: A Stable Base for Dynamic Changes | 40

Information technologies

Along with innovations, the previous twelve months also demanded support for the largest transformation program in the Company’s history, which, for the division of information technologies, brought the need to participate inachievedsavings.Thefieldofnetworkoperationswasdominatedbysuccessful projects such as outsourcing operations and maintenance of tra-ditional network technologies by Ericsson Slovakia entailing transfer of one hundred employees, reengineering and restructuring of services supplied by partners, assets maintenance and management, and many others.

Anextendedmodernizationprogramwassuccessfullylaunched:networktransformation, a program of key importance for the future of the entire company. IMS implementation as a part of the network transformation program was a vital step, replacing traditional technologies and integrating voiceanddataservicesofthefixedandmobilenetworksintoasingletech-nologicalplatform.TheprojectofmodernizingtheIPnetwork’saggregationlayer(fixedandmobileones)aswellasapilotprojectinPiešťanyarethekey elements of the program, and are facilitating better planning of further stagesofthecomplexprogram.Preparationandlaunchingofintegrationofcontrollingandmonitoringfixedandmobilenetworkoperationsalsosaw important milestones in accomplishing technology integration and thusachievinghigherlaborefficiencyandoperationsmanagement.Thoseactivities were and are carried out in a period of limited funds, making it necessarytocontinuouslyincreaseefficiencyofoperatingandinvestmentcosts so that money saved could be reinvested into transformation.

Other activities included improvement of request and sources management processes in networks and information technologies, launching a project tooptimizeproductportfolios,continuingrevisionofservicingcontractsacross the entire section, and consolidation of product portfolio, servers, datacentersandotherelementsinordertoincreaselaborefficiencyandoperatingcostsforthestandardizationofthenetworksandinformationtechnologies environment.

SlovakTelekomalsocontinuestobevisibleinthefieldofinternationalprojects, the key aspect being continuing migration and upgrade of the customerrelationshipmanagementsystem(NGCRM),necessaryformoreefficient,fullyintegratedlabordistributionincontactcentersandbackoffice.2011wasfundamentalforthesuccessofthatprogram,uniqueintheentire world.

Technologies and networks

Slovak Telekom remains one of the largest companies from the perspective of new investment in technologies. During the year several technologies wereextended,withthegreatestemphasison3Gnetworkinnovationsand,inparallel,onextensionoftheopticnetworktoselectedtowns.

Mobile networksAmongthegreatestsuccessesinextendingnewtechnologieswasachiev-ingalmost65%coverageofSlovakiabythe3Gnetwork–atthebeginningof the year, the network coverage was 42%, meaning the 3G network came into many new locations throughout Slovakia. Gradually, the mobile network’s speed increased in a growing number of towns and surrounding villages.

Implementation of innovations in the 3G network started on 23 March 2011,whenSlovakTelekombecamethefirstoperatortoputnewHSPA+technology into commercial operation. In the initial stage, the latest network extensionwaslaunchedinBratislava,PiešťanyandKomárno;laterinthe

year further locations in Slovakia were gradually covered. HSPA+ technol-ogyenableddatadownloadataspeedofupto21.8Mbpsand,bytheendof the year, was in more than 170 locations. The company also changed forthefirsttimesupportedspeedsinthedataportfolio,withtheinternetinmobilephonescominguptomaximumspeedsfromthebeginningofthetechnology launch. A new modem by Huawei was added to the portfolio to enable this high speed data transfer.

In the second half of July 2011, a successful test of HSPA+ 42 Mbps tech-nologyinsingle-carriermodewasrealized.Itwasthefirsttest,notonlyinthe history of the entire Deutsche Telekom Group but anywhere worldwide, making Slovak Telekom a leader in mobile broadband. The HSPA+ test was carried out by Slovak Telekom along with Deutsche Telekom, and network supplier Ericsson, with testing terminals supplied by Qualcomm Incorpo-rated.Thetest’spurposewastoshowmaximumbanduseinaBratislavacity quarter; during the demonstration, options of single-carrier mode were compared to the standard dual-carrier mode, prepared by Slovak Telekom for launch in the following months. Test operation showed that the technol-ogy in single-carrier mode reached results comparable to the dual-carrier mode,andthedownloadspeedachievedwasashighas38Mbps.

Anothermilestoneinthefieldofmobiletechnologywasthecommerciallaunch of HSPA+ 42 Mbps in October, which doubled capacities and speed tothetheoreticalmaximum.Itresultedinincreasednetworkqualityandcapacity in the light of continuously growing demand for mobile broad-band services. In parallel to that innovation, Slovak Telekom introduced an upgrade for faster data transmission, also adding to all locations with HSPA+42Mbpsanextensionforuploadingataspeedof5.8Mbps.Bothtechnologieswerelaunched(19October2011)infivetowns:Bratislava,Nitra,Piešťany,SládkovičovoandNovéZámky.Bytheendof2011thecoverageextendedto10towns(withBanskáBystrica,Trnava,TrenčianskeTeplice,MartinandVrútkyadded).

SlovakTelekomthusreaffirmeditsgoalofbecomingamobilebroadbandleaderandtheplayerfirsttobringtechnologicalinnovationstotheSlovakmarket–inthecourseoftheyearbecomingthefirsttolaunchallthreeextensionsofthe3Gnetworkandcarryingoutatestuniqueintheworld.

Fixed networks Inthefixednetwork,thecompanycontinuedinvestinginextendingoptic and metallic coverage, thanks to which it achieved the milestone of 368,000householdscoveredbyopticnetworkandmorethan1.2millionhouseholds by metallic connection. It is Slovak Telekom’s endeavour to bring broadband access services not only to towns but also to less densely populated areas.

Digitaltelevisionservices(IPTV)wereextendedbynewfunctionalitiessuchas connection to the video portal Free.sk, the social network Facebook, and TV Archive which enables playing programs from the beginning and extendedrecordingfunctions.ThosefunctionsbecameavailableafterthetransitiontothenewversionofMediaroom1.6and2.0platforms.Atthesame time newer, faster end-user devices were offered by Motorola, based on the SoC Broadcom 7405 modern and featuring a hard drive with capac-ity of up to 320 GB.

Those innovations and investments prepared the network and product portfolio for increasingly larger volumes of transfer data, and newer, more powerful end-user devices for customers, along with their increasing demandforfunctionalityandquality.SignificantresourceswereinvestedinmodernizingtechnologiessoSlovakTelekomcouldcontinueprovidingits services at the highest level, thus providing its customers new products reflectingtheupcomingtrends.

Report of the Company‘s Management Information Technology: A Stable Base for Dynamic Changes | 41

In2011,theHumanResourcesUnitsignificantlycontributedtotheongoingtransformation of Slovak Telekom. Once again, Slovak Telekom pursued itsambitiontobeanattractiveemployerforbothexistingandpotentialemployees.TheeffortsfocusedonpreservingthenatureoftheHRUnitasachangefacilitator,flexiblyrespondingtochangesinthelabourmarketand among employees and providing the best solutions and services to internal customers based on business needs and organisational priorities. Humanresourcesasasupportunitreflectedthesizeandneedsoftheorganisation.

In2011SlovakTelekomhad3,871employees,consistingofapproximately59% men and 41% women. Over the same period the headcount of ZoznamandZoznamMobilewas59employees,wheremorethan49%

weremen.PosAmhad268employees,consistingof79%menand21%women.

The 2011 year-end data indicated that the average age of an employee of SlovakTelekomwas38.5years,whiletheaverageageofemployeesofZoznamandZoznamMobilewas32andofPosAm37.3.Morethan49%of Slovak Telekom employees are university graduates; secondary school graduateswithafinalschoolleavingexaminationamountto51%.

Human Resources as a Partner in Business

Report of the Company‘s Management Human Resources as a Partner in Business | 42

Remunerationandemployeebenefits

Gradual alignment of organisation structures, job positions and remunera-tion throughout the Company continued in 2011.

The IT and telecommunications sector is in the long-run among leaders in remuneration. This is why the Company endeavoured, in the process of harmonising organisation structures and job positions, to align and set up a fairandcompetitiveremunerationpolicyandschemesreflectingthesitua-tion in the Company and on the Slovak market.

In its alignment efforts with respect to non-managerial positions, the HR Unitstarteddesigningavariableremunerationschemeforfrontlineposi-tions, where it was necessary to apply joint rules for particular groups of job positions. In the following months, the Company worked on designing the remuneration scheme for other groups of job positions to be implemented in the course of the year. The employees continue to be rewarded based ontheirindividualperformance,whichisalsoreflectedinpaymentofthevariable part of salary for frontline employees and of the individual part of bonuses for other employees.

TheCompanycontinuedprovidingbenefitsintheformoftheso-calledcafeteria,i.e.byselectionfrompre-definedproductsandservices,whereemployees can get discount or favourable conditions for purchases (e.g. in relationtohealthcareorrecreationfacilities).StartingfromOctober2011employees were given the option to choose meal vouchers from two suppli-ers.In2011employeeswereofferedasimplifiedportfoliooffixednetworkandtelevisionproducts.Employeescouldalsousediscountsforfixedandmobile products in the form of discount vouchers for their friends.

One of the areas which saw several positive changes was the mobile phone policy for providing mobile handsets and devices as working tools. From the end of 2011, employees are able to choose work telephones of their choice from all mobile handsets the Company offers.

One of the priorities for the upcoming years is the development of new applications, as well as setting HR tools in order to increase effectiveness of selected processes.

Education and development

Education and training was in 2011 focused primarily on the development of employees in direct customer contact. A whole range of development activities for this target group was implemented, with co-funding from the European Social Fund.

Alongwithusingexternalservices,internalplatformswerefurtherdevel-oped, such as workshops, internal coaching and moderated discussions for employees on technical topics, called Hot Chairs. Motivation competitions such as Service Hero, with its strong focus on supporting pro-customer behaviour, and Best Performer, promoting the Company’s long-term high-performance initiative, also continued as internal activities.

The development of attitudes and competencies necessary for coping with change and change management was a priority for corporate culture, and theunderlyingthemeofbothFlyfish,SlovakTelekom’sinternalconference,and workshops focused on supporting corporate culture and leadership. In

2011, internal facilitators led 12 workshops for 110 managers. To intensify communication between employees and top management, the platform “A DaywithaTopManager”wasintroduced.Theinitiativegaveemployeesthechance to join a moderated discussion concerning leadership, make an in-dividualappointmentaspartof“opendoors”scheme,andevenexperiencean informal gathering with a top manager.

Another important milestone to help the Company take a further step in building the coaching culture was the start of an internal coaching programme, and developing a group of internal coaches from among employees and managers.

In2011,theEducationandDevelopmentSectionorganisedatotalof640internalandexternaltrainingactivitieswith4970participants.TheaveragedevelopmentcostsperemployeewereEUR257.

The major focus of developing frontline employees, as provided by the Training and Coaching Department, was on adaptation, product and soft skills training courses. The number of training courses in these areas was 744cycles.Internaltrainersprovided9,672hoursoftrainingtoeducate4,849participants.

Also in this year, employees were invited to choose a self-training option in theformofe-learningprogrammes(focusedonfixedandmobileproductsand services, working in internal systems, PC skills, language skills, or legislation).68newe-learningcoursesand373e-testsweredeployedin2011. The number of e-learning students was 42,500 and 39,500 e-tests weremadetoexaminethegainedknowledge.

Employee care

Slovak Telekom continues to give attention to occupational safety and health(OSH).In2011theCompanyimplementedanOSHManagementSysteminaccordancewithOHSAS18001internationalstandards.Itsbases are prevention, thorough inspection activity, a periodical re-training system and building overall employee awareness in the OSH area.

Over2,000employeesparticipatedin“Programzdravia”(HealthPro-gramme)activitiesaimedatpromotingone’sownhealthcare.TheHealthProgramme focuses in particular on employees’ healthy working condi-tions, injury prevention, healthy diet and movement. The core of the programmewasorganizingaTýždeňzdravia(WeekofHealth)inMayandpartiallyalsoinSeptember2011,whereemployeescouldgetexaminationofbasicvitalfunctions(BMI,bloodpressure,bodyfat),healthtestsandbloodtests(e.g.forcholesterol)andenjoyinterestinglecturesonvarioustopics. These involved cardiovascular disease risk factors, occupational safety when working with monitors, healthy diet, stress protection and the like.Theseactivitiesandothers,suchastraininginskilfulprovisionoffirstaid, took place continually throughout the year.

Inordertoexpandflexibleformsofemployment,aHomeOfficeDirectivewas implemented in February 2011, enabling employees who obtain their superior’s consent to work from a place other than their typical workplace, based on their own choice.

TheHRUnitobtained45initiativesaspartoftheAlexandertransformationprogramme; these were mainly aimed at optimising HR processes, services


andelectronicapplications.In2011,28initiativeswereresolvedandconcluded.

The Company operated the employee line [email protected], which received a total of173employeequeries,concerninginparticularremuneration,benefitsand personnel advising. Almost all queries were answered within a 24-hour interval.

Partner for business

2011 was also the year for completing the integration of the Network and IT UnitofthecompaniesSlovakTelekomandT-Mobile,alongwithlaunchinginnovationactivities.TheHumanResourcesUnitwasapartnerin:

� a 10-month process of preparations and implementation of merging thefixedandmobiletechnologydivisions,calledNetworkMerge.Majoremphasis was put on transparent manager selection for the future organisationstructure(staffingofalmost100managerialpositions)anda smooth start for the division’s new organisation as of 1 October 2011.

� carrying out the outsourcing of legacy technology operations and maintenance;100expertsjoinedEricssonSlovakiabyvirtueoftransferofrightsandobligations,andthiswasthefirstmanagedservicesprojectin this area within the entire Deutsche Telekom Group.

� startingupICTbusinessintermsofstaffingkeypositionsinthisstrategic line of business for Slovak Telekom; the ICT area had the highestnumberofnewhiresfromtheexternallabourmarketintheNetworksandITUnit.

Cooperation with secondary schools and universitiesIn 2011, Slovak Telekom continued intensive cooperation with students and teachers at different levels. The Company participated in several job fairsforstudentssuchasDnipríležitostí(OpportunityDays)inBratislava,ŽilinaandKošice,orNárodnédnikariéry(NationalCareerDays),whereitwasawardedtheprizeformostattractiveboothandrecognizedwithaFirma NDK 2011 award in both Bratislava and Košice.

The traditional programmes that the Company has consistently prepared forstudentsinclude:

� DiplomovkaatST(UniversityThesisatST); � technical events, lectures, and onsite visits; � year-roundstudentinternshipforselectedspecializedsecondaryschoolstudents;

� job opportunities for students and graduates; � Virtual student club.

InMarch2011theCompanystartedthepilotprogrammeOdbornástážvSlovakTelekome(TechnicalInternshipatSlovakTelekom)andsincethen10 internship posts. The programme is intended for long-term stays of universityandcollegestudents.Itlasts6to12monthsandgivesmotivatedstudents a chance to work on real-life projects and tasks in their areas of

specialization,anduniqueexperienceintheenvironmentofthelargestmultimedia operator.

HumanResourcesUnitemployeesorganised,incooperationwithexperts,numerousexcursionsforsecondaryandtertiarystudentstoSlovakTelekom’sspecializedclassroomsandworksites.Over200studentshadthe opportunity to visit a central test laboratory, get acquainted with GPON technology and see our base stations and many practical demonstrations.

After successfully establishing long-term cooperation with secondary schools, again in the 2011/2012 school year select students of the Banská Bystricaspecializedsecondaryschoolaregainingpracticalexperienceinservice worksites. In early 2012 the workplaces are being visited by four 4th year students. The Company also plans to involve their younger school-matesinfuturecooperation,andexpandtheschemetootherregions.

Another milestone was the organisation of the seventh annual conference Telekom Day, designed for technical university master’s degree students. These had a unique opportunity to learn about the most recent trends and outlooksdirectlyfromtheCompany’sexpertsandtohearpresentationsof technologies and applications used by the operator. The main topic of the annual event taking place in Bratislava on 10 November 2011 was innovations. Other topics included cloud computing, innovation in access networks and Hybrid PayTV. A new feature this year was poster presenta-tions combined with a workshop in an interactive mode for small groups ofstudents.Studentscouldchoosefromeighttopics,whereexpertsan-sweredtheirquestionsandprovideddetailedtechnologyexplanations.Thetopics included Mobile Internet Gateway, GPON, Backhauling- Mobile and Fix,IMS,DualCarrierHSDPA42vs.SingleCarrierHSDPA42,andothers.

In addition to 75 Slovak university students, the conference was also attend-edbyeightstudentsfromtheUniversityofLeipzig,apartnerwithwhichSlovakTelekomcooperatesonstudentandspecialisedlecturerexchanges.As in previous years, an important part of the conference was the meeting between representatives of the academic community, rectors, deans and teachers and the Slovak Telekom Group’s managers.


Communication:PathwaytoSuccessforEmployees,Customers and Public

In2011theSlovakTelekomGroupundertookmanyactivitiesatalllevels:in the business arena providing service to all customer groups and intro-ducing new technologies, in the corporate sphere through many events and with topical themes, and in new business areas with ICT or sponsor-ing activities. The foundation is open communication by all companies to several target groups – their own employees, customers, and the public – and presentation of outcomes at a high level.

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Bavte sa s televíziou Magio od Telekomu!

Report of the Company‘s Management Communication: Pathway to Success for Employees, Customers and Public | 45

Slovak Telekom

ExternalCommunication

Inthecourseof2011,externalcommunicationpaidgreatattentiontoseveralsignificanttopicswhichlaterdominatedpublicityasawhole.3GnetworkexpansionandintroductionofthenewHSPA+technologiesweredominant topics in the area of technologies, and preparing and opening the new data centre in Bratislava became a major theme in the ICT segment. An important subject of business was support for the largest offering of telephones at special prices, and introduction of many new items and the pre-paid Disney collection card (which thanks to the introduction of parental servicesinthesecondhalfoftheyearintersectedwiththeCRsphere).Sponsoring activities, primarily the popular Magio beach in Bratislava and some musical events, were rich topics for communication. A total of over 3,700 articles were published about the Company in 2011. Number one in 3G: introducing HSPA+ technologyThecommunicationobjectivewastousetheexpectedtimeadvantageinthe prepared introduction of state-of-the-art mobile data technologies to become the market leader in this direction. In selecting the key messages we concentrated on both speed itself and on the overall increase of network capacity and throughput for customers, and beginning of massive invest-mentinto3GexpansionthroughoutSlovakia.

ThefirststepwasintroductioninMarchofthefastestmobileinternetinSlovakia via HSPA+ technology, with a rate of up to 21 Mbps, at a press conference featuring an actual demonstration of the technology. The inten-tiontosignificantlyexpandthe3GnetworkinSlovakia,andtheobjectiveofnearly doubling 3G networkcoverage within two years of the end of 2010, were concurrently announced.

A unique test in July of HSPA+ technology, with a rate of up to 42 Mbps under“single-carrier”mode,wasanimportantmilestone;SlovakTelekomwasthefirstoperatorintheworldtocarryoutthistest.ThetechnologicalbriefingforjournalistsinthepresenceofpartnersfromDeutscheTelekom,EricssonandQualcommaimedatemphasizingplannedadvancementsinthe network capacity area. We also managed to demonstrate our ability to come up with yet another technological innovation of global importance in Slovakia even after introducing FLASH-OFDM technology.

The 3G communication series culminated with the Slovak debut in October of HSPA+ with speed of up to 42 Mbps. Its commercial operation in selectedtownsandcities,anduploadincreaseto5.8Mbps,werethemaintopic of a press conference which also introduced Christmas offers.

Thanks to the steps taken and good communication timing, we succeeded in presenting Slovak Telekom as the technology leader on the market, able to bring technological novelties into the real lives of its customers.

Communication on new data centreThoughSlovakTelekomhasextensiveexperienceinoperatingdatacentres,the public and the media perceived it as a company primarily providing servic-es to residential customers through products like digital television, internet and voice services. The Company itself has been undergoing a change process to become an all-round ICT operator, and therefore the main communication challenge was for it to be so perceived from outside. The building and opening of a state-of-the-art data centre in Bratislava, on which we focused a major part ofthecommunicationactivities,wasthemostsignificantstepinthissense.

After the foundation stone was ceremonially laid with the participation of IBM, which built the structure, we informed the media of current project status on a regular basis through press releases and photos. The opening ceremonyoftheTelekomDataCentreinJunewasanexcellentopportunityto show the new space not only to business partners and potential custom-ers but also to journalists. A press conference was held directly on the data centre premises. It included a thorough guided tour and the chance to shoot photographs or video. This resulted in a number of mentions in themediaoverthenextmonthsandagradualchangeintheperceptionofSlovak Telekom as one of the strongest players in Slovakia’s ICT market.

The largest offering of telephones at special prices Slovak Telekom, or more precisely the T-Mobile brand, was in the past usually linked to introduction rolling out of new phones to Slovakia’s market eitherastheexclusivesupplierorwithattractivepricing.Wedecidedto reinforce this message in line with a summer promotional campaign offering nearly a hundred telephones at special prices and more than 50 phonesatthepriceofEUR1.Westrengthenedourportfoliobycombiningthe newest phones having advanced operational systems with a re-offering ofourbestsellersatspecialprices.Thesalesresultsinthefirstweekscon-firmedcustomerswereinterestedinnoveltiesbutalsoinwell-established

Report of the Company‘s Management Communication: Pathway to Success for Employees, Customers and Public |46

telephone models which were not succeeded by newer models but whose owners preferred them over completely new ones. By continually introduc-ingnoveltiesinthesecondhalf-year(includingexclusivemodelsorattrac-tiveconceptslikeSonyEricssonXperiaPlay)weconfirmedthatcustomerscanfinddozensofsubsidizedphonesofdiversemodelsandstylesunderthe T-Mobile or Telekom brand.

Musical eventsThe 4th annual T-Mobile Music City attracted as usual the attention of the public and the media, thanks in part to the new Music City Club Edition concept. For the second time we gave journalists access to domestic and international musicians backstage in Košice in June, and bring their fans and readers information directly from the source.

The international project of the T-Mobile brand, the well-established Elec-tronic Beats festival, brought invited journalists a more progressive view of contemporary music in Bratislava’s MMC club. It was one of the top events of the Slovak club scene, closely watched by the music media, including Rádio FM, in October.

Magio BeachThe theme that once more generated the greatest medial value was the now-traditional Magio Beach. 2011 was the 5th year the Company organ-izedtheBeachprojectatTyršovenábrežieinBratislava.TVMarkíza,whichshot some of its programmes on the beach during the summer, was one of the media partners. Journalists covering the world of movies had an opportunitytomeeteachotheronthebeachforthefirsttime,becausethisyear’s programme included an open-air cinema, showing 24 Slovak and foreign movie hits.

ThesummerprogrammeatTyršovenábrežieculminatedintheMagioCup,a media beach volleyball tournament. Its 3rd year brought together famous faces from the world of show business, representatives of mass media, Beach partners and professional volleyball players. The general public couldalsoenjoysportingtournaments,dancemovesbyBraziliandancers,live music and refreshing drinks.

We also celebrated the success of Magio television on Magio Beach at the beginning of July, when the number of its subscribers surpassed 150 thousand. We gave the 150 thousandth customer a branded LCD television in front of the media’s cameras, and the beach visitors present were offered 150drinks.SväťoMalachovskýandRenéŠtúr,knownfromthetelevisionprogramme Oops and the Radošinské naivné divadlo (The Radošina Naive Theatre),providedgoodhumourasmastersofceremony.

Corporate responsibilityThe Company has long undertaken corporate responsibility activities, thusexpressingitslong-termvoluntarycommitmenttodobusinessontheprinciples of responsibility and ethics and support the community in which it operates. These are projects which often the stories of real people and therefore this area of business requires a different communication style.

ThenewsaboutTelekom’scorporateresponsibilityconstitutesapproxi-mately 5% of the all press releases. Therefore the public still may not have a clear idea of what corporate responsibility is. We therefore decided to bring this world closer to the public in June through a one-week event on MagioBeachcalledNesiemezodpovednosť(Wetakeresponsibility).Theevent’s programme consisted of various areas of support which we dedi-cateourselvesto,offeringexclusivecontenttoseveraltypesofmedia.Weopenedtheeventwithapressconference,inwhichHenrietaMičkovicováandAlexanderBárta,thestarsoflastyear’s7thsenseproject,openedaphotographicexhibitioncapturingsomeunforgettableemotionsfromtheimplementation of the Company’s corporate responsibility projects.

The new child internet and mobile protection mechanisms were the fundamental themes of corporate responsibility communication in 2011. In March,webroughtauniquenewitemtothemarket,thefirstDisneycollec-tion pre-paid SIM cards for children, through a press conference held in a toy shop, underlining the special nature of the product.

TheDisneySIMcardwassupplementedwithfiveusefulparentservicesinOctober, which launched the second round of communication. Our objec-tivewastoenhanceknowledgeoftheservicesviaPRarticlesexplainingtoparents, in an understandable manner, how the each service works. This communication used people known from the press conference as ambas-sadors of the services in lifestyle interviews describing the new services’ advantages. The interviews ran in daily papers and various women’s magazinesandspecializedweeklies,andappearedontwowebportalsalongside a product contest.

InthemediawesimultaneouslypromotedtheRodičovskákontrola(Paren-talcontrol)service,whichenablesinternetprogrammecustomerstoblockinappropriate web sites at different levels depending on the age of the children.ThankstothealignmentofthetimesoftheRodičovskákontrolacommunication and the Disney collection SIM card product launch, we suc-ceeded in strengthening our position of a family-friendly operator in terms of child internet safety.

RebrandingAs part of supporting the introduction of the new Telekom brand we pre-paredaspecialcommunicationforprintmedia.Itencompassedexplana-tion of key positive facets of the change from the customers’ viewpoint, and messages which had not been included in the marketing campaign. TheexecutivedirectorformarketingDušanŠvalekgaveaninterviewtotheweeklyTrend,inwhichheanalyzedtheTelekombrandlaunchstep-by-step,and customers’ total perception of the brands.

Corporate publicity The corporate communication arena, an integral part of media space, mainly dealt with numerous regulatory themes and legislative changes inthecourseof2011.Theextensionoffrequencylicencesandnewacton electronic communications were the most common themes. The latter brought in a number of changes; the media were mainly interested in the shortening of the number portability period, and establishment of an obligatory 12 month subscription period.


Internal Communication

Internal communication faced several challenges in 2011. The gradual finalizingofintegrationprocessessmoothlygavewaytothesettingoftransformation objectives, which again featured many changes. Timely and transparent communication of all important information was one of the main priorities. The ongoing corporate culture change required emphasis on higher employee motivation, fostering their loyalty, team co-operation, creation of space for communication, and management’s getting closer to employees.

Employee eventsEmployee and management meetings are an important source of infor-mation. The Business Forum in March, mainly intended for managers, launched a series of another eleven meetings with employees throughout Slovakia.Theseaimedatpresentingallsignificanteconomicindicatorsand corporate strategy and objectives, and motivating employees for the forthcoming period of changes. The main topic of it was the presentation ofthenewAlexandertransformationprogramme,whichhasimpactonallfunctionalareasoftheCompany.Itcompriseseconomizingmeasures,rendering activities more effective, and higher motivation of the front lines in the interest of better sales of the services provided by the now-integrated operator. The two-day Top 70 Summit was a novelty among employee events;managersbecamemorefamiliarwithspecifictransformationsteps.

For corporate culture formation, management and managers play a key role,andthereforetheinternalcommunicationteamstartedtoorganize,in co-operation with the Human resources unit, a new format of meetings called“Adaywith...”.Aselectedmanagementmemberdevotesonedaytomeetings and conversations with employees, who can choose a face-to-facedialogue,groupdiscussiononleadership,oreveningofflinemeeting.A series of informal events also included the opening of Magio Beach and aspecialdaywiththenewchieffinancialofficerwhichtookplacerighton Magio Beach. The day was full of contests, and sporting and creative activities.

Employees’ determination to help was manifested in the Naše mesto (Our city)CRproject,underwhichteamsselectedfromamongawidevarietyofcommunity volunteer activities, such as cleaning of parks, painting of gates of nursery schools and so forth.

Afilm-themedChristmasMovieNAJ-Tpartywasahighpointforallemploy-ees. It was the Company’s employees who were the celebrities that evening. The internal communication team prepared a packed programme and many activities for its colleagues providing them with an opportunity to have funinarelaxedatmosphereafteradifficultperiod.

Internal mediaDirectmailsandmessagesfromexecutivedirectors,sharinginformationaboutimportantorganizationalchanges,wereawell-triedformofcommu-nication.

TheT-timeinternaljournalofferedaversatileprofileofallimportantCom-panymilestones,creatinganopenspaceforselfexpressionandpresenta-tionofouremployees’opinionsandexperiences.Besidestransformationand business support, themes regarding corporate responsibility, Program zdravia(HealthProgramme)supportandotherHRthemes,andaneduca-tive campaign focused on safety, were ongoing topics.

All recent information was also available on the intranet, where more than

200 articles dealing with current events, with an average clickthrough rate of 2,300, were published last year. The new application “Zjednodušujeme sAlexandrom”(SimplifyingwithAlexander)waspresentedaspartofthetransformation programme in April 2011, aimed at identifying, based on employee suggestions, processes and areas that could be made more effectiveandstreamlined.Theapplicationenablesemployeestoexpressopinions on the individual suggestions by voting to like/dislike it. They thus became more important, themselves setting their priorities regarding the Company’swork.Theapplicationrecordedmorethan180suggestionsover eight months. All were analysed on an ongoing basis and gradually resolved by the relevant units; 95% of the suggestions were dealt with by the year’s end.

Videos, recording authentic statements and reactions of our employees and management,aswellascapturingtheatmosphereofallsignificanteventsover the course of last year, were an integral part of electronic communica-tion.Inthethirteenepisodesoftheseries“Podarilosanám”(Wedidit),wegave employees space to share their successes with other employees. The incentive and the objective were to highlight the individual contribution ofeachemployeeandthesignificanceofpersonalcontributionsinteamco-operation and creation of our Company’s success. Corporate culture change is an important part of the transformations made in the Company. The communication activities performed enable us to successfully contrib-ute little by little to the changes in this area.

Internal campaignsThe“Úspechnašejfirmymámenatrikuvšetci”(Wewereallsuccessful)campaign focused on everyday work life, and the employees themselves wereitsprotagonists.Thiscampaignwasalsoawardedabronzenailinthe category PR creativity at Slovakia’s 17th annual Slovak Golden nail competition.

Mutual appreciation, estimation and respect were the main motives of this year’s campaign on the occasion of Corporate Principles Day. In the last week of September, all employees could participate in sending compliments in the spirit of Corporate principles. Along with printed cards, an interactive electronic card was introduced, whose enjoyable form inspired the sending of many messages. As a part of the Day, managers were asked to prepare with theiremployeesagroupactivitywhichwouldbenefittheirteam’scooperation,such as an outdoor group meeting and discussion on what the principles bring their everyday work lives.

Inýobr.INT.časopis

Report of the Company‘s Management Communication: Pathway to Success for Employees, Customers and Public |48

The integration and introduction of a new and joint Telekom brand in October was supported by communication in all internal media. It included a campaign inspiredbythemotiveof“NAJ”(TOP)marketingcampaigns.Allemployeescouldcreatetheirown“NAJ”T-shirts.Theemployeesaddedtheirowncreativemottos through an internet application, such as NAJlepši futbalista (TOP foot-ballplayer),orNAJradšejmámsvojtím(myteamistheTOP)andsoforth.Ex-ecutivemanagementalsoappearedin“NAJ”T-shirtstheycreatedthemselves,thus promoting employee products under the sub-motto “Toto ide na naše triko”(Atourownexpense).Thecampaignmetwithhugesuccessamongemployees. It supported several corporate objectives related to introducing the new brand, presented the individual Christmas plans, and motivated employees to try out new products and services offered in order to serve later as the services’ ambassadors on the market, and present the products to their families and friends.

Marketing Communication

TheCompanycontinuedtofulfilthepromiseofthebrand:“Zažimetospolu”(Lifeisforsharing)againin2011,bycomingupwithnewitems,sponsoring popular TV shows, and providing solutions for voice services, fixedandmobileinternetanddigitaltelevision.Forthefirsttenmonths,it was still communicating both the T-Mobile and T-Com brands, but the year-end Christmas campaign was associated with introducing the new Tel-ekom brand. This is associated with the ambition to become the favourite operator, with the highest number of customers and the widest portfolio of products and services on Slovakia’s market.

Advertising Campaigns

Theanaloguesignalwasdefinitelyswitchedoffin2011.Withthiscomesenhanced communication of TV services and functions under the Magio brand(includingviasatellite)withoutmonthlyfeesormandatorysubscrip-tion period. As for internet, Slovak Telekom is positioned as a full provider of web services, offering mobile internet, home internet and internet in the mobile.

Spring campaign: betting, and Disney collection SIM card The main spring campaign was about betting, overcoming the myths and stereotypes about telecommunications services. Slovak Telekom’s custom-ers can have calls, internet and television at one place and with coverage alloverSlovakia.WiththePodľaseba(MyChoice)flat-rateplan,customerscan choose how much they want to pay. With the super-fast Magio internet, available at a special price, they can download whatever they want and also get a 50% discount on notebooks with special plans. Magio Sat offers customersthemostpopularSlovakandCzechprogrammesfreeofchargeperpetuallyand,moreover,withnosubscriptionperiod.Upto47%ofpeople spontaneously remembered at least one of the advertisements, and supportedrecognitionwasat93%(Source:GfK,ATS03/2011).

InMarch,theCompanylaunchedanewitemonthemarket:aspecialDisneySIMcardforchildrenwithtwomotifs:HannahMontanaforgirlsand

Cars for boys. Together with advantageous calling prices, the SIM card was packaged with tattoos, stickers, and a game. In autumn, the offering was expandedtoincludeastylishmobilewithagiftfromtheDisneycollection.With new functions, the parents have the calls and safety of their children under control.

UndertheT-Mobilebrand,theCompanybecameageneralpartnerofthemost popular music show Česko Slovenská SuperStar 2, broadcast by TVMarkízaforthefourthtime.Thepopular“mobilefigures”werereplacedby image communication about mobile internet, showing the immerse possibilitiesitprovides.TheCompanybecamethefirstcompanyinhistorytosuccessfullycommit12finaliststoitscommunication;itcreatedtwovery successful sponsorship messages with them, and prepared an image campaign about the tripling of 3G network speed. The spots received more than half a million clicks on YouTube while the show was being broadcast and the communication was very strong and well registered; the effective penetrationinthetargetgroupof15to25year-oldsachievedupto60%.ThecampaignwasshortlistedforanEFFIE2011andinspiredtheCzechT-Mobile to adapt the campaign.

Summer and autumn: the largest special offer of telephones and notebooks at one EuroThe Company’s summer communication started by providing customers the biggest offer of mobile phones starting at one Euro. With T-Mobile’s fastest mobile internet, the customer can surf wherever they want with no limit, without having to pay additionally for the data. The offer was rounded


outwiththefavouriteMagiointernetequippedwithaninnovativefunction:protecting children from age-inappropriate content. The rate of campaign recognitionachievedexcellentvalues;thespontaneousrecognitionrateachieved54%,andsupportedrecognitionupto90%(Source:GfK,ATS06/2011).With200thousandclicks,theadvertisementrankedamongthemostwatchedCompanyadvertisementsonYouTube(Zažimetospolu(LifeisforSharing)),andevokedpositiveresponsesoversocialnetworksandamong common people.

The Company’s offer of notebooks for all families for one Euro brought in the autumn. Everybody can afford notebooks without an instalment plan now, with selected Magio internet and mobile internet plans. For the firsttimeSlovakTelekombecameasponsoroftheČesko Slovensko má talent 2contestbroadcastbyTVJOJ,sinceitsatisfiesthebackgroundvalues for Magio television as a service for the whole family. The show was anexcellentplatformfortheprovisionofinteractivefunforCompanycus-tomers, mainly through Magio digital television, which also has something like“talent”thankstoitsuniquefunctions.Communicationsucceededinsupportingthepremium-ratepositioningofthe“mosttalented”Ma-gio television, and aptly presenting selected functions (a wide range of programmes, live TV pause and rewind, and digital quality of picture and sound)thatarethekeydecisionfactorsforbuyingtheservice.Thanksinpart to sponsoring, the show became the most-watched programme during thisperiod,confirmingthesuccessitmetwithinnearlyfortycountriesaround the world.

For business customers, the Company brought unlimited calls to their own fixedandmobilenetworks,newmobilesstartingat1Euro,andahalf-yearof free unlimited mobile internet in 2011. The “Podeľte sa o úspech!” (Shareyoursuccess!)contestintendedforsmallbusinesspeoplewasorganised for the second time, having met with success the year before. The contestants could again share their major in their business successes, winning fan votes on Facebook. This year, they were additionally to make promisestotheircustomersofwhattheywouldfulfiliftheywonthecontest.Winners could get free billboard and banner promotion for their business-es. More than 20 thousand Facebook users voted in the contest, voting for 271 of the projects registered. The web site www.podeltesaonajuspech.sk was visited by nearly 90 thousand unique users.

Christmas campaign and new brand introduction Slovak Telekom accomplished its integration process, launching the Telekom brand on the market in mid-October. The brand supersedes and simultaneouslyunifiestheoriginalT-ComandT-Mobilebrandsunderasingle brand, from here on representing all products and services of the fixedandmobilenetworks.ItsintroductionwasbasedontheDeutscheTelekomGroup’sinternationalstrategyinthecorporateidentityfield,andbringsbenefitstocustomers.ThisistheCompany’sonlylogosinceOcto-ber. Customers can resolve their needs on the common free customer line 0800123456,orthewell-arrangedinteractivewebportalwww.telekom.sk,featuringanewe-shopandcommonadministrationofexistingfixedandmobile network services. A joint sales network of Telekom Centres, where customerscanfindthemarket’swidestofferingoftelecommunicationsservices and high-quality customer service, has been common knowledge for more than three years. The brand was presented together with the Christmascampaign.Itachievedexcellentresultsafterseveraldays:morethan 50% correct association with the new Telekom brand and understand-ing of the brand change. Telekom brand awareness surveyed achieved up to80%afterapproximately2months.

TheCompanyaskedthepopularbandHorkýžeSlíže(whichinseveralwayspromotesvalueslikethoseofTelekom:itissocial,authentic,sincere,natural,unreserved,inspiring,open-minded,vitalandentertaining)toco-operate on its Christmas campaign. Christmas started with the introduc-tion of a Magio TV offer. An actual concert was organised at a housing estate,amongblocksofflats,inTopoľčanyfortheTVcommercial.Thespotpresented the new Magio TV function, which is time shifting, or viewing a broadcast that was recorded earlier. The commercial ranked among the favouritesontheCompany’sofficialYouTubechannel:Zažimetospolu(Lifeisforsharing).FurtherspotscontinuedtocommunicateMagioasthesafestinternet,andthemostgenerousPodľasebaflat-rateplansprovidingcash-backsofuptoEUR200andunlimitedcalls,SMS,andMMStotheirnearestand dearest. The campaign was supported with contests and activities on Telekom’s new fan web site of the Facebook social network, joined by more than 30,000 fans in under three months. The Christmas commercials’ spontaneousrecognitionratewas53%,andthesupportedratewas86%(Source:GfK,ATS12/2011).ThecampaignrankedfirstinTOP10sponta-neous knowledge of commercials in the target group of young people aged 15to25yearsinNovemberandDecember(Source:GfK,YoungPeopleAdMonitorfortheStratégie(Strategies)monthly).


Full array of awards in 2011 Slovak Telekom participated in various Slovak and international competi-tions in 2011, presenting several successful campaigns launched recently. It won many awards or shortlistings.

Effie Slovakia 201113thannualnationalmarketingcommunicationefficiencycompetition.

� Bronze Effie: Campaign:“Pappardelle”,thePodnikateľ(Businessman)plan

� Shortlists: Autumncampaign2010:“Volanienaulicu”(Streetcalls)familyline Internetprojectforentrepreneurs:“Podeľtesaoúspech!”(Shareyoursuccess!) Sponsorshipproject“SmobilnýminternetombyťSuperStarsadá!” (YoucanbeaSuperStarwithmobileinternet)

Golden nail 2011 17th annual competition of Slovakia’s most important and prestigious advertising creativity.

Category C – TV and movie commercials � Silver nail 2011: DedeaMSvofutbale(Dedeandfootball’sWorldCup)–TVseries,Istropolitana Ogilvy

Category D – Radio � Bronze nail 2011: Akosavolá?(What’shis/hername?)–radioseries,IstropolitanaOgilvy

CategoryE–Interactive&online � Bronze nail 2011: Podeľtesaoúspech!(Shareyoursuccess!)–online,IstropolitanaOgilvy Keďsišťastný(Whenyouarehappy)–Rytmus,MUWSaatchi&Saatchi

� Silver nail 2011: Keďsišťastný(Whenyouarehappy)–viral,MUWSaatchi&Saatchi

Category G - MEDIA � Bronze nail 2011: Dedevkine(Dedeatthecinema),IstropolitanaOgilvy

� Silver nail 2011: Premietači(Cinemaprojectionmen)–moviespot,MUWSaatchi&Saatchi

Category H – CREATIVITY IN PR � Bronze nail 2011: Mámetonatriku(Wewereallsuccessful),MUWSaatchi&Saatchi

Category J – CAMPAIGN � Silver nail 2011: DedeaMSvofutbale(Dedeandfootball’sWorldCup)–campaign,Istropolitana Ogilvy

Rainbow ball 2011:12thannualinternationalfestivalofcommercialsheldintheCzech Republic.

Category–“Rainbowsmile” � Silver: Dede campaign, Istropolitana Ogilvy

Category – Video � Bronze: Dede series of football TV spots, Istropolitana Ogilvy

Category – Digital � Bronze: Podeľtesaoúspech!(Shareyoursuccess!),IstropolitanaOgilvy

Festival of Media Awards Montreux 20115th annual world-wide competition of creativity and innovation of sponsors and their media agencies .

Appraisal:HighlyCommendedCategory:BestearnedmediaCampaign:Podeľtesaoúspech!(Shareyoursuccess!)

FLE media awards 20115th annual competition of media agencies established in the territory of theSlovakandCzechRepublics,awardingthebestmediacampaignsandcreative use of media.

Innovative sponsor: Slovak TelekomGRAND PRIX: T-Mobile–Dedevkine(Dedeatthecinema)(agency:Mediaedge:ciaSlovakRepublic)Best use of movie commercial: T-Mobile – Dede v kine (Dede at the cinema)(agency:Mediaedge:ciaSlovakRepublic)Best small campaign: T-Com&T-Mobile–Podeľtesaoúspech!(Shareyoursuccess!)(agency:Mediaedge:ciaSlovakRepublic)

Telekom Media Awards 2011International in-house competition of the Deutsche Telekom Group.

Best use of Social Media:Podeľtesaoúspech!(Shareyoursuccess!)GRAND PRIX: Podeľtesaoúspech!(Shareyoursuccess!)


Sponsoring Activities

Magio Beach The 5th year of a unique Bratislava project called Magio Beach was carried out in 2011. The beach was open longer than ever, from 1 June until 11 September 2011.

Morethan126,000peoplevisitedthebeachthisyear.Anewdesignforthecentral terrace and main bar surprised visitors, and the programme was the most versatile ever. The beach provided the atmosphere of a different countryeachweek:Cuba,Turkey,Brazil,Scandinavia,andFrance.Forthefirsttimeever,aMagiosummercinemaprojectwaspresented,thankstowhichvisitorswatcheddomesticandinternationalfilmsfreeofcharge.We

offered continuous access to information to all beach visitors through free Wi-Fi connection via Magio internet. The beach created ideal conditions forsportsmen:twocourtsforbeachvolleyball,areasforbeachfootballandbadminton, table tennis, table football, darts and pétanque. Visitors looking forrelaxationusedthesummerreadingzone,morethan400sunbeds,and680seatsintwobarrooms,andfamilieswithchildrenenjoyedseveralchildren’s attractions and slides with pools. Magio Beach again this year becameasought-afterplaceforactiverelaxationandpleasantencounterson the Danube shore

T-Music City The music sponsoring project T-Music City continued its the 4th year in 2011. Following the tradition created and the communication promise given(“Thebiggestpartyinyourcity”)youngpeoplealloverSlovakiaenjoyedfivestylishmusicevents.2011broughttwoformatsfortheevent.The people in Košice witnessed a grand T-Music City event with several stages, open-air performances in several music styles, and music through the entire city.

Another four cities enjoyed a new even format, called T-Music City Club Edition. This produced more intimate events, held in Slovakia’s best music clubs.Thenewformatreceivedanextraordinarilypositiveresponsefromthe target group. An equally important part of the T-Music City project from the very begin-ning has been online activity. The Company continued the tradition of preparing original contests, putting out regular news from the world of music, and providing space for user-generated content. On-line activities were based on two platforms, the project’s own web site and Facebook.

T-Com as platinum partner of Slovak football The Company continued as partner of the Slovak Football Association and Slovakia’s national football team under the T-Com brand until July 2011. Slovakfootballfanscouldexperiencethegreatestsportsmomentsofthenational team in the company of the T-Com and Magio brands.

The support of Slovak football as a platinum partner of the SFA and the Slovak national football team is in line with the sponsoring strategy and corporate responsibility philosophy. Slovak Telekom intends to support communitylife,andfootballisasignificantpartofit.

Zoznam

ExternalCommunication

ThetaskoftheZoznam.skinternetportal’sexternalcommunicationwastofosterconfidenceandpartnerships,withanaimofstimulatingdiscussionon innovations in the Company and enhancing the response and interest of journalists.Alongwithstandardcommunicationchannels,Zoznamstartedto use social networks, thus addressing other opinion online community leaders. New products and cooperation enabled it to enter markets in whichithadnotbeenrepresented,suchasdiscounts(BOOMER.sk),thesegmentforinternetusersover40(PlniElanu.sk),andinnovationsthroughtheadditionalcatalogueplatformDopytovač.sk;thestrategyofunifyingtheproduct’s design line continued. Thanks to successfully implemented in-novationsandnovelties,2011wasayearof6%increaseand57%marketshareretentionforZoznam.sk,inacontinuouslygrowingmarket.Zoznamgrewnotonlyintermsofproductsbutalsoflourishedasamediaoperator.Compared with the year before, its products were visited by an additional 111thousandnewcustomers(Source:AIMmonitor–IABSlovakia–Media-research&Gemius,October2011).

Marketing communication and media partnerships

Thewell-knownsummerbeautycontestDievčaleta(GirlofSummer)took place in the Topky.sk news portal in the summer. Thanks to a special Facebook application created to support the contest on the social network, Topky’s popularity on Facebook increased ten times. The original fan base of6thousandincreasedto60thousand.Topky.skbecameoneofthemostpopular media on Facebook in two months.

2011wasasuccessfulyearforZoznam.skintermsofsuccessfulsponsor-ships and cooperation on attractive creative concepts. Aupark visitors associatetheZoznam.skbrandwithafreeWifinetwork.Zoznam.skcom-municated the Aupark internet connection through the creative project “Wifitovovzduchu”(Wifiintheair).IncooperationwithMicrosoft,Zoznam.skprovideditsusersanopportunitytodownloadInternetExplorer9,aspecialversionofthebrowser.Zoznam.skprovidesthreespecialversionsofthebrowser,simplifyingaccesstothepopularsitesinZoznam’sproductportfoliosimpler.AradiocampaignfortheKariéra(Career)jobportalaccompaniedwiththe“Neodpáľsanapohovore”(Tipsforjobinterview


success)creativeprojectalsooriginatedatyear’send.Radiospotswarnedlisteners in an amusing way of the most common errors which applicants commit in job interviews.

ThankstocooperationwithExpressradio,theKariéra.skjobportaldirectlybecame part of the morning show, with the moderators themselves looking forjobsforpeopleundertheKariéra.skbrand.Zoznam.skalsostartedcooperation with the web sites of major television stations in Slovakia in 2011. The portals of the JOJ and TA3 television stations link to articles at the Topky.sk news portal and the job offerings on the Kariéra.sk portal.

SponsorshipsZoznam.skalsocontinuedsupportingmajormarketingconferencesin2011,forexampleMobilerulezz,aprofessionalconferenceonmobilemarketing,andFacebookrulezz,thefirstandonlyconferenceinSlovakiadealing with Facebook marketing and communication.

Additionally,Zoznam.skbecameapartnerofZlatýklinec2011(Goldennail),thecompetitionforthemostcreativeadvertisinginSlovakia.Onthisoccasion, it launched its www.najreklamy.sk project, providing readers of the Topky.sk portal with an overview of the best from the world of advertise-ment.

In2011,ZoznamdecidedtohelpnewSlovakinternetcompaniesandnewstart-ups projects to become visible. Based on mutual agreement, it offered start-ups and investors marketing, media and professional help in creating and raising awareness of new projects.

TheZoznam.skinternetportalsupportedasusualmanyinterestingdebutsof movies, stage plays, concerts and other events, thus associating with themostimportantandanticipatedculturaleventsinSlovakia.Zoznam.sk again became a sponsor of Pohoda, Slovakia’s biggest music festival, andotherfestivals(TopfestandLodenica),andtheconcertsofRoxette,theScorpions, Erasure, Rammstein and Sade, and also supported concerts by Richard Müller, Gladiator, No Name and Márie Rottrová. Zoznamsupportedseveralmoviereleases,suchasVarieté(Varietyshow),Skúsmarozosmiať(Trytomakemelaugh),Tvojsnúbenecmôjmilenec(Yourfiancé,mylover),Odcházení(Leaving),Jedendeň(OneDay),Trajamušketieri(Threemusketeers),Perfectdays,Nevinnost(Innocence),andanimatedcartoonslikeRio,KungFuPanda2,Šmolkovia(TheSmurfs),ArthurzachrániVianoce(ArthursavedChristmas),Kocúrvčižmách(Pussinboots)andothersin2011.

Italsosupportedstageplays.Examplesinclude:Valčíknáhody(Thewaltzofcoincidence),Zem(TheEarth),Kukura,November,Detiráje(ChildrenofEden),RómeoaJúlia(RomeoandJuliet),Vianočnákoleda(ChristmasCar-ol),Shakespearovskéslávnosti(theShakespeareFestival),Letohereckýchosobností(Summerofactingpersonalities),andFestivalčeskéhodivadla(theCzechTheatreFestival).

CooperationwiththeNationalTennisCentreenabledZoznam.sktogivemedia support to the Davis Cup and Fed Cup tennis competitions.

PosAm

PosAm’scommunicationactivitiesmainlyfocusedonorganizingeventsfor the professional community. It was also a sponsor of all the important conferences of its industry.

TechDays East and West 2011 events, where the Company organised atechnologyseminaronnewdevelopmentsinITvirtualizationandinproviding applications, was one of the most important events of the year. Customers were acquainted with current trends and practical case studies. TechDays West was closely associated with the IT economy; PosAm pre-sented realistic tools and possibilities for reducing IT costs while increasing service quality.

PosAm,togetherwithIBMSlovensko,organizedanotherannualinstalmentof Lotushow in 2011. Customers were presented Lotus novelty items, a comparison of the Lotus portfolio with those of competitors, and interesting tips and tricks for using Lotus Notes.


The Slovak Telekom Group believes that corporate responsibility entre-preneurshiphasgonebeyondthescopeofoccasionalfinancialhelptopeopleinhardship;ithasintensifiedtothelevelofaCompanycommitmentto do business and behave responsibly and ethically towards all parties. Corporate responsibility principles are an integral part of the business phi-losophy and strategy of Slovak Telekom Group companies, based in turn on the corporate responsibility principles of the parent company Deutsche Telekom,andareapprovedbyexecutivemanagementeveryyear.TheyreflecttheentireGroup’sCodeofConductofemployeesanddefinebehav-iour towards the community, employees, customers, suppliers, partners, and the environment.

Slovak Telekom

It is always desirable for the Company to give its customers, employees andpartnersmorethantheyexpect.Imaginereceiving,alongwithmobileinternet,freeservicetoprotectyourchildrenfromsurfingtoinappropriatecontent. In the evening, your social network lets you know that the same companyisorganizingafootballmatchoforphanagechildrenandcelebri-tiesonthecitybeachthenextday.Severalmonthslater,youreadinyourfa-vourite weekly that a Song for the Deaf has been composed, through which your mobile internet provider hopes to bring closer worlds of the hearing and the hearing-impaired. You also watch the group’s video clip and decide you want to learn sign language like the lead singer. On the internet, you findthatthecompanywillbeorganisingafreeweek-longsignlanguage

course for the public. You may be impressed enough by the company to apply for one of the vacant positions. You succeed, and get a job with the company. Your boss sends you to several interesting educational courses. You pick your own employee product at an advantageous price. You partici-pate in a Week of Health. Thanks to an internal campaign, you contribute totheDobrýanjel(GoodAngel)system,andnextyearyoumaywanttojointhe volunteer tree planting activity in the High Tatras.

Even the communication of social responsibility itself shows Slovak Telekom employees that there can be an interesting story behind every single activity. The story above is a shortened version of Slovak Telekom’s corporate responsibility story in 2011. The Company directed its support primarily to spheres in which it could help comprehensively, particularly by providing know-how, volunteering, or services rendered. Assistance was provided through toll-free help lines.

The Company worked on child internet protection mechanisms, and in Augustlaunchedthetoll-freeserviceRodičovskákontrola(ParentalControl)onbothmobileandfixedinternetconnection,lettingparentsblockinap-propriate sites on the internet by child age without installing any software. Consideringthedecreasingageofchildrenusingtheirfirstcellphones,inMarch Slovak Telekom offered mobile services customers SIM cards with Disneycollectiondesignatedforchildren;fiveusefulparentserviceswereadded in October, giving a better overview of calls made by children and ensuring their safety.

Slovak Telekom was a partner of the OVCE.sk cartoons, dealing with safe usage of the internet, which are not only on the internet but also broadcast

Corporate Responsibility

Report of the Company‘s Management Corporate Responsibility | 54

on TV and public transportation. In 2011 nine new episodes were made in cooperationwiththenot-for-profitorganisationeSlovensko.Alsonewwasthe language offering, with episodes now available in German, Slovenian, Polish and Estonian.

The Company was simultaneously striving to create a motivating environ-ment for employees and reliable and affordable products and services for customers, to apply a transparent approach to its suppliers and business partners and, last but not least, reduce the ecological risks of its busi-ness. As a common standard, the Company has started to offer electronic invoices to all new customers, and customers prolonging their services or activating or changing some of the services. This change aimed at provid-ing the advantages of electronic invoices to the largest possible group of customers, thus contributing to environmental protection.

ThankstothegoodfinancialresultstheCompanyachieveseachyear,Slovak Telekom was also active in the philanthropic arena. In 2011, the Tel-ekom Endowment Fund with the Intenda Foundation supported 44 projects in the areas of contemporary art and support of disadvantaged groups, and (throughanewgrantcycle)literacydevelopmentusingadvancedtechnolo-gies,withatotalofEUR160,000.

The Company presented the world of corporate responsibility at a unique week-longeventcalledNesiemezodpovednosť(Wetakeresponsibility)ontheMagiobeach.Thepurposewastoexpressitslong-termcommitmentto doing business based on the principles of ethics and responsibility. The event was enhanced by accompanying activities which showed visitors the worldofthedisadvantaged,taughtthemhealthyexerciseandrevealedthesecretsofsignlanguage.HenrietaMičkovicováandAlexanderBártaopenedtheevent,whichincludedaphotographicexhibitioncapturingunforgettable moments from Slovak Telekom’s corporate responsibility projects,whichinfluencedthelivesofmanypeople.Theexhibitionwasavailable to beach visitors all summer.

In support of the hearing-impaired community, Slovak Telekom, in co-operation with the Slovak boy band Desmod, brought out the song Zvuko-prázdno(Soundlessness)abouttheworldofthedeaf,bringingitclosertothe public and to opening the theme of the soundless world in which they live.Thesepeoplecanmainly“listen”tothemusicthroughrhythm,bassandartisticinterpretingofthetext,whichiswhySlovakTelekomoptedforsuch cooperation. The song’s accompanying video was interpreted in sign language, and a deaf actor played its main character.

InMarch,SlovakTelekomexpandedanotherprogrammeforthehearing-impaired. The thirty hearing-impaired entrepreneurs from the grant programme’s previous three years were joined by another ten people who sufferfromhearingimpairmentsandhavestrongdrivetodobusiness.JozefMarkovič,theonlydeafparagliderinSlovakia,wasoneofthesuccessfulapplicants. Telekom presented a short video about his life and the business activitiesofotherentrepreneurswithhearingimpairmentsat:nawww.nepocujucipodnikatelia.sk.

TheCompanytrainedanothersixtyemployeesofTelekomCentresinbasicsignlanguage.Thehearing-impairedcanfindtheminmorethanfiftyTelekom Centres throughout Slovakia.

As for corporate volunteering, the employees engaged themselves in the programme of collecting used clothing, medical material, and children’s booksandtoys,intheHlavypomáhajú(Engageyourhead)programme,inwhichtheyhelpedvariousorganizationswiththeirknowledgeandexperience.TheyalsoparticipatedintheeventsNašemesto(Ourcity)and

Dnidobrovoľníctva(Volunteeringdays),duringwhichtheydonatedbloodtogether with other companies of the Corporate Donors Club.

Zoznam.sk

Zoznamknowstheproblemsandneedsofthethirdsectorwell,andthere-fore it has long supported corporate responsibility projects, giving priority to long-term, development-oriented and innovative donor partnerships. By providingmediaspace–atnocost–itenablesnot-for-profitorganisationstopublicizephilanthropicactivities.

In2011,Zoznamsupportedthefollowingnot-for-profitorganisationsinthisway:Úsmevakodar(Smileasagift),Červenýkríž(RedCross),Človekvohrození(PeopleinPeril)Association,ProtiPrúdu(AgainsttheStream),Klubdetskejnádeje(Children’sHopeClub),Ligaprotirakovine(LeagueAgainstCancer),DetskýhospicPlamienok(PlamienokChildren’sHospice),Želajsi(MakeAWish)civicassociation,andothers.

PosAm

In 2011, PosAm, in co-operation with AK Spartak Dubnica nad Váhom and the Ministry of Education of the Slovak Republic, organised the 12th annual Slovak-widetalent-searchcontestforyoungsters,“HľadámenovéhoJozefaPlachého”(WearelookingforanewJozefPlachý).Theobjectiveofthecon-test is to look for elementary and high school students talented in sports. It alsoprovidedfinancialsupporttoDusloŠaľasportsclub.

TheCompanyalsoprovidedfinancialcontributionstothefollowing:Proficio,anathleticclubofpeoplewithimpairments;DetskécentrumRužomberok(Children’sCentreinRužomberok);Domka;CHRISTIANA;Juvamen;Lúčka;NadáciaUNIVERZITYP.J.Šafárika(FoundationofPavolJozefŠafárikUNIVERSITY);Plamienok;SAMARITÁN;Slovenskéhemo-filickézdruženie(Slovakhaemophiliasociety);ZdruženiepridetskomdomovePiešťany(FosterHomeAssociationinPiešťany);andZdruženieLepšísvetpreznevýhodnených(BetterWorldfortheDisadvantagedAs-sociation).The Company’s employees donated blood three times during the year. The PosAm team became involved in the voluntary initiative called Naše mesto (OurCity)organisedbyPontisFoundation,cleaningtheSovílesprotectedarea.WesupportedMisia01(Mission01)charityeventundertheDobrákrajina(Goodcountry)programme.TheCompany’semployeesdonatedproceedsfromatraditionalChristmascharitybazaartoafamilyfromSvid-ník whose son, now 9 years old, has polio.

Report of the Company‘s Management Corporate Responsibility | 55

Financial statements

57 Consolidatedfinancialstatements

98 Separatefinancialstatements

134 Proposalforprofitdistribution

IV


prepared in accordance with International Financial Reporting Standards (IFRS)andAuditor’sReportfor the year ended 31 December 2011

Consolidatedfinancialstatements

Contents

59 Consolidated income statement

60 Consolidatedstatementofcomprehensiveincome

61 Consolidatedstatementoffinancialposition

62 Consolidatedstatementofchangesinequity

63 Consolidatedstatementofcashflows

64 Notestotheconsolidatedfinancialstatements

95 Independent auditor’s report

Financial statements Consolidated financial statements |58

Consolidated income statement for the year ended 31 December

thousandsofEUR Notes 2011 2010Fixednetworkandbroadbandrevenue 379,572 398,102Mobile communication revenue 462,179 492,542Other 55,604 43,619Total revenue 5 897,355 934,263

Staff costs 6 (145,963) (153,512)Material and equipment (84,308) (84,761)Depreciation,amortizationandimpairmentlosses 13,14 (237,909) (244,698)Interconnection and other fees to operators (107,888) (110,402)Other operating income 8 14,213 15,737Other operating costs 7 (198,262) (208,264)

Operating profit 137,238 148,363

Financial income 9 6,826 4,540Financialexpense 10 (2,523) (3,135)

Profit before tax 141,541 149,768

Taxation 11 (29,643) (28,909)

Profit for the year 111,898 120,859

Theconsolidatedfinancialstatementsonpages59to94wereauthorisedforissueonbehalfoftheBoardofDirectorsoftheGroupon15March2012by:

Personresponsibleforaccounting:

Preparerofthefinancialstatements:

............................................................ ............................................................ Ing. Miroslav Majoroš Dr. Robert Hauber Chairman of the Board of Directors Member of the Board of Directors andChiefExecutiveOfficer andChiefFinancialOfficer

............................................................ Ing. Mária Rokusová Senior Manager of Shared Service Center

............................................................ Ing. Vladimíra Richterová Manager of Reporting and Accounting Policies

Financial statements Consolidated financial statements | 59

Consolidated statement of comprehensive incomefor the year ended 31 December

thousandsofEUR Notes 2011 2010Profit for the year 111,898 120,859

Other comprehensive incomeActuarialgains/(losses)ondefinedbenefitplans 26 3,299 (616)Deferredtax 11 (627) 117Other comprehensive income for the year, net of tax 2,672 (499) Total comprehensive income for the year, net of tax 114,570 120,360


Consolidatedstatementoffinancialposition

thousandsofEUR Notes 2011 2010

ASSETSNon-current assetsProperty and equipment 13 1,004,157 1,072,925Intangible assets 14 404,437 402,403Held-to-maturity investments 30 - 39,266Deferredtax 11 66 79Trade and other receivables 18 4,509 -Prepaidexpensesandotherassets 20 18,219 22,576

1,431,388 1,537,249Current assetsInventories 17 11,252 13,733Trade and other receivables 18 111,691 117,384Prepaidexpensesandotherassets 20 7,097 16,483Held-to-maturity investments 30 82,724 43,079Currentincometaxreceivables 254 3,584Loans to Deutsche Telekom group 21 190,000 85,000Term deposit over 3 months - 60,000Cash and cash equivalents 22 178,633 169,828

581,651 509,091Assets held for sale 12 - 1,134

581,651 510,225

TOTAL ASSETS 2,013,039 2,047,474

EQUITY AND LIABILITIESShareholders’ equityIssued capital 23 864,113 864,113Share premium 23 386,139 386,139Statutory reserve fund 159,240 130,629Actuarialgains/(losses)ondefinedbenefitplans 2,380 (292)Retainedearningsandprofitfortheyear 229,336 285,524

1,641,208 1,666,113Non-current liabilitiesProvisions 26 9,991 11,682Deferredtax 11 139,296 150,934Other payables and deferred income 24 17,956 21,955

167,243 184,571Current liabilitiesTrade and other payables and deferred income 24 182,985 186,326Provisions 26 5,611 10,133Currentincometaxliabilities 15,992 331

204,588 196,790

Total liabilities 371,831 381,361

TOTAL EQUITY AND LIABILITIES 2,013,039 2,047,474

as at 31 December


Consolidated statement of changes in equity for the year ended 31 December

thousandsofEUR Notes Issued capital

Share premium

Statutory reserve fund

Actuarial (losses)/gains on

defined benefit plans

Retained earnings

Other reserves

Total equity

Year ended 31 December 2010As at 1 January 2010 864,113 386,139 91,071 207 240,066 97,090 1,678,686Profitfortheyear - - - - 120,859 - 120,859Other comprehensive income - - - (499) - - (499)Total comprehensive income - - - (499) 120,859 - 120,360Allocation to funds 23 - - 39,558 - (39,558) - -Dividends 23 - - - - (132,933) - (132,933)Release of revaluation reserve - - - - 97,090 (97,090) -At 31 December 2010 864,113 386,139 130,629 (292) 285,524 - 1,666,113

Year ended 31 December 2011As at 1 January 2011 864,113 386,139 130,629 (292) 285,524 - 1,666,113Profitfortheyear - - - - 111,898 - 111,898Other comprehensive income - - - 2,672 - - 2,672Total comprehensive income - - - 2,672 111,898 - 114,570Allocation to funds 23 - - 28,611 - (28,611) - -Other changes in equity - - - - (9,475) - (9,475)Dividends 23 - - - - (130,000) - (130,000)At 31 December 2011 864,113 386,139 159,240 2,380 229,336 - 1,641,208


Consolidatedstatementofcashflowsfor the year ended 31 December



Adjustmentsfor:Depreciation,amortizationandimpairmentlosses 13,14 237,909 244,698Interest income, net (6,269) (2,200)Incometaxexpense 11 29,643 28,909Gain on disposal of property and equipment 8 (1,022) (349)Other non-cash items (3,176) (1,196)Movements in provisions (3,468) 3,001

Changes in working capitalChange in trade and other receivables 8,041 3,429Change in inventories 4,392 (2,180)Change in trade and other payables (1,117) 144

Cash flows from operations 376,831 395,115Incometaxespaid (20,681) (47,165)

Net cash flows from operating activities 356,150 347,950

Investing activitiesPurchase of intangible assets, property and equipment (178,081) (144,820)Proceeds from disposal of intangible assets, property and equipment 1,884 1,451Acquisition of interest in subsidiary 4.5 - (8,448)Acquisition of held-to-maturity investments (39,273) (105,286)Proceeds from disposal of held-to-maturity investments 39,559 56,211Disbursement of intragroup loan (170,000) (110,000)Repayment of borrowings 65,059 105,045Termination/(acquisition)ofshort-termbankdeposit 60,000 (60,000)Interest received 4,645 2,623

Net cash used in investing activities (216,207) (263,224)

Financing activitiesDividends paid 23 (130,980) (132,933)Repaymentoffinancialliabilities (134) (133)Other charges paid (24) (57)

Net cash used in financing activities (131,138) (133,123)

Netincrease/(decrease)incashandcashequivalents 8,805 (48,397)Cash and cash equivalents at 1 January 22 169,828 218,225

Cash and cash equivalents at 31 December 22 178,633 169,828


NotestotheconsolidatedfinancialstatementsIndextothenotestotheconsolidatedfinancialstatements

1. Generalinformation 65 2. Accountingpolicies 66 3. Financialriskmanagement 76 4. Businesscombinations 78 5. Revenue 80 6. Staffcosts 80 7. Otheroperatingcosts 80 8. Otheroperatingincome 81 9. Financialincome 81 10. Financialexpense 81 11. Taxation 81 12. Assetsheldforsale 82 13. Propertyandequipment 83 14. Intangibleassets 84 15. Impairmentofgoodwill 85 16. Principalsubsidiaryundertakings 86 17. Inventories 86 18. Tradeandotherreceivables 87 19. Financelease–theGroupaslessor 87 20. Prepaidexpensesandotherassets 88 21. LoanstoDeutscheTelekomgroup 88 22. Cashandcashequivalents 88 23. Shareholders’equity 88 24. Tradeandotherpayablesanddeferredincome 89 25. Financelease–theGroupaslessee 89 26. Provisions 90 27. Commitments 91 28. Relatedpartytransactions 91 29. Contingencies 92 30. Financial assets and liabilities 94 31. Audit fees 94 32. Events after the reporting period 94


1. General information

TheseconsolidatedfinancialstatementshavebeenpreparedforSlovakTelekom,a.s.(“theCompany“or“theGroup”or“SlovakTelekom”)anditssubsidiariesZoznam,s.r.o.(“Zoznam”),ZoznamMobile,s.r.o.(“ZoznamMobile”),PosAmspol.sr.o.(“PosAm”)andTelekomSec,s.r.o.(together“theGroup”).

Slovak Telekom is a joint-stock company incorporated on 1 April 1999 intheSlovakRepublic.TheCompany’sregisteredofficeislocatedatKaradžičova10,82513Bratislava.Thebusinessregistrationnumber(IČO)oftheCompanyis35763469andthetaxidentificationnumber(DIČ)is2020273893.On4August2000,DeutscheTelekomAG(“DeutscheTelekom”or“DTAG”)gainedcontroloftheCompanythroughtheacquisi-tion of 51% of the shares of Slovak Telekom. The transaction involved the purchaseofexistingsharesfromtheNationalPropertyFundoftheSlovakRepublic and the issue of new shares. The Slovak Republic retains 34% of the shares of the Company through the Ministry of the Economy of the Slovak Republic and the National Property Fund of the Slovak Republic retains 15% of the shares of the Company.

In December 2009 the Board of Directors of the Company approved the concept of the integration of Slovak Telekom, a. s. with its 100% subsidiary T-MobileSlovensko,a.s.(“T-Mobile”)inlinewiththestructuralandorgani-zationalchangeswithintheDeutscheTelekomGroup.On27April2010the integration of the companies was approved by the General Meeting of the Company. As a result of this decision, T-Mobile was wound up without liquidation by means of an up-stream merger and all its assets, rights and obligations, including labour rights and duties, were transferred to Slovak Telekom as the legal successor as of 1 July 2010. Since October 2011 the Company operates on the market under one common brand name Telekom instead of two brand names T-Com and T-Mobile.

On 29 January 2010 the Company acquired 51% of the share capital of PosAm.

On31August2005theCompanypurchased90%ofthesharesofZoznamand100%ofthesharesofZoznamMobile.On30June2006theCompanyacquiredtheremaining10%ofthesharesinZoznam.

TheCompanyisaleadingsupplieroffixed-lineandmobiletelecommunica-tionsservicesintheSlovakRepublicandownsandoperatessignificanttelecommunications facilities therein. The Company provides national and international telephony services, broadband internet services, IPTV (Magio TV),satelliteTV(MagioSAT),andawiderangeofothertelecommunica-tions services including data networks, value added services and leased lines. It also provides residential and business customers with products ranging from standard telephones to computer communications networks. TheCompanyprovidesmobiletelephonyservicesinthe900MHzand1800MHzfrequencybandsundertheGlobalSystemforMobileCommu-nicationsstandard(“GSM”)andinthe2100MHzfrequencybandundertheUniversalMobileTelecommunicationsSystemstandard(“UMTS”),here-inafterreferredtoas“mobileservices”.TheCompanyusesthe450MHzfrequency band to provide wireless broadband internet access under the Flash-OFDM standard and provides Managed Data Network Services. TheCompanyalsolaunchedFixedWirelessAccess(FWA),utilizingthe26GHz/28GHzfrequencybands.

ThegenerallicensegrantedbytheTelecommunicationsOfficeoftheSlovakRepublicfortheprovisionofmobileservicesunderthe900MHz,1800MHzand450MHzfrequencybandsisvalidupto31August2021.

TheUMTSlicenseisvalidupto31August2026.The26GHz/28GHzfrequencylicensesweregrantedbytheTelecommunicationsOfficeoftheSlovak Republic and are valid up to December 2017.

ZoznamandZoznamMobileoperatetheinternetportalwww.zoznam.skand www.topky.sk and develop mobile entertainment content and software for mobile phones, and provide information, advertising and promotional services.

PosAm directs its business activities towards providing IT services, applica-tions, infrastructure solutions and consulting to corporate customers.

Members of the Statutory Boards as at 31 December 2011

Board of DirectorsChair: Ing.MiroslavMajorošVice-chair: Ing.MartinMácMember: Dr.RobertHauberMember: AlbertPottMember: Dr.RalphRentschlerMember: Ing.MilošŠujanskýM.B.A.Member: Ing.RóbertSándor

Supervisory BoardChair: Dr.Hans-PeterSchultzVice-chair: Ing.KatarínaLeškováMember: Ing.JúliusMaličkýMember: MilanBrlejMember: Ing.JánVozárMember: Ing.JánHláčikMember: Ing.MiroslavGalambošMember: CorneliaElisabethSonntagMember: TanjaWehrhahn

In2011anumberofchangeswereenteredintheCommercialRegister:Mr.SzabolcsGáborjáni-SzabólefttheBoardofDirectorsinApril2011andwas replaced by Mr. Robert Hauber. In addition, the Chair Mr. Andreas Hesse left the Supervisory Board in November 2011 and was replaced by Mr.Hans-PeterSchultz,whowasamemberofSupervisoryBoarduntilthereplacement.ThememberpositionofMr.Hans-PeterSchultzwasreplacedby Ms. Tanja Wehrhahn.

DeutscheTelekomAG,withitsregisteredofficeatFriedrichEbertAllee140, Bonn, Germany, is the parent of the group of which the Company is amemberandforwhichthegroupfinancialstatementsaredrawnup.Theparent’sconsolidatedfinancialstatementsareavailableattheirregisteredofficeorattheDistrictCourtofBonnHRB6794,Germany.


2. Accounting policies

The principal accounting policies adopted in the preparation of these con-solidatedfinancialstatementsaresetoutbelow.Thesepolicieshavebeenconsistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparationTheconsolidatedfinancialstatementshavebeenpreparedonahistoricalcostbasis,exceptwheredisclosedotherwise.

TheGroup’spresentationcurrencyistheEuro(“EUR”),theconsolidatedfinancialstatementsarepresentedinEurosandallvaluesareroundedtothenearestthousands,exceptwhenotherwiseindicated.

Thefinancialstatementswerepreparedusingthegoingconcernassump-tion that the Group will continue its operations for the foreseeable future.

Statement of complianceThesefinancialstatementsaretheordinaryconsolidatedfinancialstatements of the Group and have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union(“IFRS”).TheconsolidatedfinancialstatementsareavailableattheCompany’sregisteredofficeorattheRegisterCourtadministeringtheCommercial Register of District Court Bratislava I, Slovak Republic.

Basis of consolidation Theconsolidatedfinancialstatementscomprisethefinancialstatementsof the Company and its subsidiaries as at 31 December for each year. The financialstatementsofthesubsidiariesarepreparedforthesamereportingyear as the Company, using uniform accounting policies.

Subsidiaries are all entities in which the Group has the power to govern the financialandoperatingpoliciesgenerallyaccompanyingashareholdingofmorethanonehalfofthevotingrights.Theexistenceandeffectofpotentialvotingrightsthatarecurrentlyexercisableorconvertibleareconsideredwhen assessing whether the Group controls another entity.

All subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consoli-dated until the date that control ceases.

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition where-bycostsdirectlyattributabletotheacquisitionareexpensedfortransac-tionsclosedafter1January2010.Theexcessofthecostofacquisitionoverthe fair value of the net assets and contingent liabilities of the subsidiary acquired is recorded as goodwill.

Ifapplicable,theGrouprecognizesattheacquisitiondatealiabilityforanycontingent purchase consideration. If the amount of contingent considera-tion accounted for as a liability changes as a result of a post-acquisition event(suchasmeetinganearningstarget),itisrecognizedinaccordancewith other applicable IFRSs, as appropriate rather than as an adjustment of goodwill for acquisitions concluded after 1 January 2010. For acquisi-tions concluded before that date, the difference between the contingent considerationrecognizedattheacquisitiondateandtheactualcontingentconsiderationpaidwasrecognizedasanadjustmenttogoodwill.

As for the measurement of non-controlling interest, from 1 January 2010,

theGroupmayrecognize100%ofthegoodwilloftheacquiredentity,notjust the Group’s portion of the goodwill. This is elected on a transaction-by transactionbasis.Beforethatdate,theGroupcouldonlyrecognizeitsownshare of the goodwill. Since 1 January 2010, the Group also attributes their share of losses to the non-controlling interests even if this results in the non-controllinginterestshavingadeficitbalance.

Allintra-groupbalances,transactions,incomeandexpensesandun-realised gains and losses resulting from intra-group transactions are eliminated in full.

2.2 Property and equipmentPropertyandequipment,exceptforland,iscarriedatcost,excludingthecosts of day-to-day servicing, less accumulated depreciation and accumu-lated impairment in value. The cost of property and equipment acquired in a business combination is their fair value as at the date of acquisition. The initial estimate of the costs of dismantling and removing the item of property and equipment and restoring the site on which it is located is also includedinthecostsiftheobligationincurredcanberecognizedasaprovi-sion according to IAS 37.

Cost includes all costs directly attributable to bringing the asset into work-ing condition for its use as intended by the management. In the case of the network,thiscomprisesallexpenditures,includinginternalcostsdirectlyattributable to network construction, and includes contractors’ fees, mate-rialsanddirectlabour.Noborrowingcostswerecapitalizedduring2010or 2011. The cost of subsequent enhancement is included in the asset’s carryingamountorrecognizedasaseparateasset,asappropriate,onlywhenitisprobablethatfutureeconomicbenefitsassociatedwiththeitemwillflowtotheGroupandthecostoftheitemcanbemeasuredreliably.Maintenance, repairs and minor renewals are charged to the income state-ment as incurred.

Anitemofpropertyandequipmentisderecognizedupondisposalorwhennofutureeconomicbenefitsareexpectedfromitsuseordisposal.Anygainor loss arising on derecognition of the asset (calculated as the difference betweenthenetdisposalproceedsandthecarryingamountoftheasset)isincludedintheincomestatementintheperiodtheassetisderecognized.Net disposal proceeds consist of both cash consideration and the fair value of non-cash consideration received.

Depreciation is calculated on a straight-line basis from the time the assets are available for use, so as to write down their cost to their estimated residualvaluesovertheirusefullives.Thedepreciationchargeisidentifiedseparatelyforeachsignificantpartofanitemofpropertyandequipment.

The useful lives assigned to the various categories of property and equip-mentare:

Buildings and masts 50 yearsOther structures 5 to 15 yearsDuct, cable and other outside plant 8to50yearsTelephoneexchangesandrelatedequipment 4 to 30 yearsRadio and transmission equipment 8yearsOtherfixedassets 13 months to 30 years

No depreciation is provided on freehold land and capital work in progress.


The assets’ residual values and useful lives are reviewed and adjusted in accordancewithIAS8,whereappropriate,ateachfinancialyear-end.ForfurtherdetailsonthegroupsofassetsinfluencedbythemostrecentusefulliferevisionsrefertoNote2.18.

Property and equipment are reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. Animpairmentlossisrecognizedfortheamountbywhichtheasset’scarryingamountexceedsitsrecoverableamount.Therecoverableamountis the higher of the asset’s fair value less costs to sell and its value in use. Impairment losses are reversed if the reasons for recognising the original impairment loss no longer apply.

Whenpropertyandequipmentmeetthecriteriatobeclassifiedasheldforsale, they are measured at the lower of their carrying amount and fair value lesscoststosellandarereclassifiedfromnon-currenttocurrent.Propertyandequipmentonceclassifiedasheldforsalearenotdepreciated.

2.3 Intangible assetsIntangibleassetsacquiredseparatelyarerecognizedwhencontroloverthem is assumed and are initially measured at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at costlessanyaccumulatedamortizationandanyaccumulatedimpairmentlosses. Intangible assets are assessed for impairment whenever there is an indicationthattheymaybeimpaired.Withtheexceptionofgoodwill,intan-gibleassetshaveafiniteusefullifeandareamortizedusingthestraight-linemethod over their useful life. The assets’ residual values and useful lives are reviewedandadjustedinaccordancewithIAS8,asappropriate,ateachfinancialyear-end.ForfurtherdetailsonthegroupsofassetsinfluencedbythemostrecentusefulliferevisionsrefertoNote2.18.

The useful lives assigned to the various categories of intangible assets are asfollows:

Customer contracts 8to15yearsLicenses 5to16years

Software and other 2to16years

Any gain or loss arising on derecognition of an intangible asset is measured as the difference between the net disposal proceeds and the carrying amount of the asset and are included in the income statement in the period theassetisderecognized.

GoodwillGoodwill acquired in a business combination is initially measured at cost, beingtheexcessoftheaggregateoftheconsiderationtransferredandtheamountrecognisedfornon-controllinginterestoverthegroup’snetidentifi-able assets acquired and liabilities assumed. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwillisnotamortizedbutreviewedforimpairmentannuallyormorefrequently if events or changes in circumstances indicate that the carrying valuemaybeimpaired(Note15).

Computer software and licenses Developmentcostsdirectlyattributabletothedesignandtestingofidentifi-ableanduniquesoftwareproductscontrolledbytheGrouparerecognizedasintangibleassetswhenthefollowingcriteriaaremet:

a)itistechnicallyfeasibletocompletethesoftwareproductsothatitwillbe available for use;

b)managementintendstocompletethesoftwareproductanduseorsellit;

c)thereisanabilitytouseorsellthesoftwareproduct;d)itcanbedemonstratedhowthesoftwareproductwillgenerateprobablefutureeconomicbenefits;

e)adequatetechnical,financialandotherresourcestocompletethedeve-lopment and to use or sell the software product are available; and

f) theexpendituresattributabletothesoftwareproductduringitsdevelop-ment can be reliably measured.

Directlyattributablecostscapitalizedaspartofthesoftwareproductincludethesoftwaredevelopmentemployeecosts.Otherdevelopmentex-penditures that do not meet recognition criteria and costs associated with maintainingcomputersoftwareprogramsarerecognizedasanexpenseasincurred.

Acquiredcomputersoftwarelicensesarecapitalizedonthebasisofthecostsincurredtoacquireandbringtousethespecificsoftware.Costcomprises all directly attributable costs necessary to create, produce and prepare the software to be capable of operating in the manner intended by management, including enhancements of applications in use. Cost also includes borrowing cost when those costs are incurred, if the recognition criteria are met.

Costs associated with the acquisition of long term frequency licenses are capitalized.Theusefullivesofconcessionsandlicensesaredeterminedbasedontheunderlyingagreementsandareamortizedonastraight-linebasis over the period from availability of the frequency for commercial use until the end of the initial concession or license term. No renewal periods are considered in the determination of useful life.

2.4 Impairment of non-financial assets Assetsthataresubjecttodepreciationoramortizationarereviewedforimpairment at each reporting date whenever events or circumstances indicate that the carrying amount may not be recoverable. Assets with indefiniteusefullifearetestedforimpairmentannually.Forthepurposeofassessing impairment, assets are grouped at the lowest levels for which thereareseparatelyidentifiablecashflows(cash-generatingunits).TheGroup determines the recoverable amount of a cash-generating unit on the basis of its value in use. The value in use is determined by reference to dis-countedcashflowscalculations.Thesediscountedcashflowscalculationsarebasedonfinancialbudgetsapprovedbymanagement,usuallycoveringafive-yearperiod,andusedforinternalpurposes.Cashflowsbeyondthedetailedplanningperiodsareextrapolatedusingappropriategrowthrates.Key assumptions on which management bases the determination of value in use include average revenue per user, customer acquisition and reten-tioncosts,churnrates,capitalexpenditures,marketshare,growthratesanddiscountrates.Thediscountrateusedreflectstheriskspecifictothecash-generatingunit.Cashflowsusedreflectmanagementassumptionsandaresupportedbyexternalsourcesofinformation.


The structure of the Group’s cash-generating units for the purpose of gene-ralimpairmenttestingisasfollows:

Cash-generating unitRecurrence of impairment testing

Onlinebusiness(Zoznam,ZoznamMobile) AnnuallyITsolutionsbusiness(PosAm) Annually

If the carrying amount of the cash-generating unit to which goodwill is allocatedexceedsitsrecoverableamount,goodwillallocatedtothiscash-generating unit is reduced by the amount of the difference. If the impair-mentlossrecognizedforthecash-generatingunitexceedsthecarryingamount of the allocated goodwill, the additional amount of the impairment lossisrecognizedthroughtheproratareductionofthecarryingamountsof the assets allocated to the cash-generating unit. Impairment losses on goodwill are not reversed.

In addition to the general impairment testing of cash-generating units, the Group also tests individual assets if their purpose changes from being held and used to being sold or otherwise disposed of. In such circumstances the recoverable amount is determined by reference to fair value less cost to sell. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generatingunitsthatareexpectedtobenefitfromthesynergiesofthecombination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is allocated represents the lowest level within the Group at which the goodwill is monitored for internal management purposes.

Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. For more details on impair-ment of goodwill in 2011 refer to Note 15.

2.5 InventoriesInventoriesarestatedatthelowerofcostandnetrealizablevalue.Costiscalculatedonaweightedaveragebasis.Netrealizablevalueistheesti-mated selling price in the ordinary course of business, less estimated costs necessary to make the sale. An allowance is created against slow-moving and obsolete inventories.

Phone sets are often sold for less than cost in connection with promo-tions to obtain new subscribers with minimum commitment periods. Such loss on the sale of equipment is only recorded when the sale occurs if the normal resale value is higher than the cost of the phone set. If the normal resalevalueislowerthancosts,thedifferenceisrecognizedasimpairmentimmediately.

2.6 Cash and cash equivalentsCash and cash equivalents comprise cash at banks and in hand, short-term deposits with an original maturity of three months or less from the date of acquisition and short term bonds and promissory notes with high liquidity.

Forthepurposeofthestatementofcashflows,cashandcashequivalentsconsistofcashandcashequivalentsasdefinedabove,netofbankover-drafts.Inthestatementoffinancialposition,bankoverdraftsareincludedinborrowings in current liabilities.

2.7 Financial assets TheGroupclassifiesitsfinancialassetsinthefollowingcategories:loansandreceivables,financialassetsatfairvaluethroughprofitorlossandheld-to-maturityinvestments.Theclassificationdependsonthepurposeforwhichthefinancialassetswereacquired.TheGroupdeterminestheclassi-ficationofitsfinancialassetsoninitialrecognitionand,whereallowedandappropriate,re-evaluatesthisdesignationateachfinancialyearend.Whenfinancialassetsarerecognized,theyareinitiallymeasuredatfairvalue,plus,inthecaseofinvestmentsnotheldatfairvaluethroughprofitorloss,directly attributable transaction costs. Financial assets carried at fair value throughprofitorlossareinitiallyrecognizedatfairvalue,andtransactioncostsareexpensedintheincomestatement.

Afinancialasset(or,whereapplicableapartofafinancialassetorpartofagroupofsimilarfinancialassets)isderecognizedwhentherightstoreceivecashflowsfromtheassethaveexpiredortheGrouphastransferreditsrightstoreceivecashflowsfromtheassetandhastransferredsubstantiallyall the risks and rewards of the ownership.

Loans and receivablesLoansandreceivablesarenon-derivativefinancialassetswithfixedorde-terminable payments that are not quoted in an active market. The Group’s loansandreceivablescomprise“Loans”and“Tradeandotherreceivables”.

Trade receivables are amounts due from customers for services performed or merchandise sold in the ordinary course of business. Trade and other receivablesareincludedincurrentassets,exceptformaturitiesgreaterthan 12 months after the end of the reporting period. Trade and other recievablesareinitiallyrecognizedatfairvalueandsubsequentlymeasuredatamortizedcost,usingtheeffectiveinterestmethod,lessprovisionforimpairment. For the purpose of an impairment testing the estimated cash flowsarebasedonthepastexperienceofthecollectibilityofoverduere-ceivables.Therecognizedallowanceforimpairmentreflectstheestimatedcredit risk.

Whenthetradereceivableforwhichanallowancewasrecognizedbe-comes uncollectible or sold, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against costs in the income statement.

Amounts payable to and receivable from the same international operators areshownnetinthestatementoffinancialpositionwhenarighttoset-offexistsandtheGroupintendstosettlethemonanetbasis.

Financial assets at fair value through profit or lossFinancialassetsatfairvaluethroughprofitorlossarefinancialassetsheldfortradingandfinancialassetsdesignateduponinitialrecognitionasatfairvaluethroughprofitorloss.Derivativesarealsoclassifiedasheldfortrad-ing.Gainsorlossesonassetsheldfortradingarerecognizedintheincomestatementwithinfinancialexpenseorfinancialincome.

The Group does not apply hedge accounting in accordance with IAS 39 for itsfinancialinstruments,thereforeallgainsandlossesarerecognizedintheincomestatementwithinfinancialcostsorfinancialincome.

Held-to-maturity investmentsNon-derivativefinancialassetswithfixedordeterminablepaymentsandfixedmaturitiesareclassifiedasheld-to-maturitywhentheGrouphasthepositive intention and ability to hold them to maturity. After initial recogni-tionheld-to-maturityinvestmentsaremeasuredatamortizedcostusingtheeffective interest method. The calculation takes into account any premium


or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate. Gains and losses are recog-nizedinprofitorlosswhentheinvestmentsarederecognizedorimpaired.

2.8 Impairment of financial assetsThe Group assesses at each reporting date whether there is objective evidencethatafinancialassetisimpaired.Afinancialassetoragroupoffinancialassetsisimpairedandimpairmentlossesareincurredonlyifthereis objective evidence of impairment as a result of one or more events that occurredaftertheinitialrecognitionofthefinancialasset(a‘lossevent’)andthatlossevent(orevents)hasanimpactontheestimatedfuturecashflowsofthefinancialassetorgroupoffinancialassetsthatcanbereliablyestimated.

Impairmentlossesoffinancialassetsarerecognizedintheincomestate-ment against allowance accounts to reduce the carrying amount until derecognitionofthefinancialassetwhenthenetcarryingamount(includ-inganyallowanceforimpairment)isderecognizedfromthestatementoffinancialposition.Anygainsorlossesonderecognitionarecalculatedandrecognizedasthedifferencebetweentheproceedsfromdisposalandthenetcarryingamountderecognizedandarepresentedintheincomestate-ment.

2.9 Financial liabilities TherearetwomeasurementcategoriesforfinancialliabilitiesusedbytheGroup:financialliabilitiescarriedatamortizedcostsrepresentedbytradeandotherpayablesandfinancialliabilitiesatfairvaluethroughprofitorloss.Afinancialliabilityisderecognizedwhentheobligationundertheliabilityisdischargedorcancelledorexpires.

Trade and other payablesTrade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade and other payables are initially measured at fair value. After initial recognition trade andotherpayablesaremeasuredatamortizedcostusingtheeffectiveinterest method.

Financial liabilities at fair value through profit or lossFinancialliabilitiesatfairvaluethroughprofitorlossarefinancialliabilitiesheldfortradingandfinancialliabilitiesdesignateduponinitialrecognitionasatfairvaluethroughprofitorloss.Derivativesarealsoclassifiedasheldfor trading unless they are designated as effective hedging instruments. Gainsorlossesonliabilitiesheldfortradingarerecognizedinprofitorloss.

The Group does not apply hedge accounting in accordance with IAS 39 for itsfinancialinstruments,thereforeallgainsandlossesarerecognizedintheincomestatementwithinfinancialcostsorfinancialincome.

2.10 Prepaid expenses The Group has easement rights to use and access technological equipment sited in properties owned by third parties. These easements are presented withinprepaidexpensesinthestatementoffinancialposition.Easementsareinitiallyrecognizedattheirnetpresentvalueandthenamortizedovertheirexpectedduration.Amortizationofeasementrightsispresentedwithin other operating costs in the income statement.

2.11 Provisions and contingent liabilitiesProvisionsarerecognizedwhentheGrouphasapresentlegalorconstruc-tiveobligationasaresultofpastevents,itisprobablethatanoutflowofresources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

If the effect of the time-value of money is material, provisions are discount-edusingarisk-adjusted,pre-taxdiscountrate.Wherediscountingisused,theincreaseintheprovisionduetothepassageoftimeisrecognizedasafinancialexpense.

Noprovisionisrecognizedforcontingentliabilities.Acontingentliabilityisapossibleobligationthatarisesfrompasteventsandwhoseexistencewillbeconfirmedonlybytheoccurrenceornon-occurrenceofoneormoreun-certain future events not wholly within the control of the entity; or a present obligationthatarisesfrompasteventsbutisnotrecognizedbecauseitisnotprobablethatanoutflowofresourcesembodyingeconomicbenefitswill be required to settle the obligation or the amount of the obligation can-notbemeasuredwithsufficientreliability.

Asset retirement obligationsAsset retirement obligations relate to future costs associated with the retirement(dismantlingandremovalfromuse)ofnon-currentassets.Theamountoftheassetretirementobligationinitiallyrecognizedintheperiod in which it was incurred is considered as an element of the cost of therelatednon-currentassetinaccordancewithIAS16.Theobligationisaccretedtoitspresentvalueeachperiod,andthecapitalizedcostisdepreciated over the estimated useful life of the related non-current asset. Uponsettlementoftheliability,theGroupeithersettlestheobligationforitsrecorded amount or incurs a gain or loss upon settlement.

Customer loyalty programMembers of the loyalty program, which was operated by the Group until the end of 2011, could have collected loyalty points for certain behaviour (e.g.forarrangingadirectdebitfacility,activationofelectronicbill,etc.)thatwere in no way related to a sales transaction. Such loyalty points were out-sidethescopeofIFRIC13andtheGrouprecognizedaprovisionagainstother operating costs in accordance with IAS 37 at the time when those points had been granted. Amount of provision was measured at the amount necessarytosettleexpectedliabilitytoparticipantsoftheloyaltyprogram.For the accounting policy regarding the loyalty points gained from sales transaction refer to Note 2.13.


2.12 Employee benefit obligationsRetirement and other long-term employee benefitsTheGroupprovidesretirementandotherlong-termbenefitsunderbothdefinedcontributionanddefinedbenefitplans.

Inthecaseofdefinedcontributionplans,theGrouppayscontributionstopublicly or privately administered pension or severance insurance plans on a mandatory or contractual basis. Once the contributions have been paid, the Group has no further payment obligations. The contribution is based on gross salary payments. The cost of these payments is charged to the income statement in the same period as the related salary cost.

TheGroupalsoprovidesdefinedretirementandjubileebenefits.Thesebenefitsareunfunded.Thecostsofprovidingbenefitsaredeterminedseparatelyforeachbenefitusingtheprojectedunitcreditactuarialvalua-tionmethod.Thedefinedbenefitliabilitycomprisesthepresentvalueofthedefinedbenefitobligationlesspastservicecostsnotyetrecognized.Thediscount rate is determined using the weighted-average yields for high-quality(BloombergAa*),non-cancellable,non-putablecorporatebonds.The currency and term of the bonds are consistent with the currency and estimatedtermofthebenefitobligations.Thepastservicecostsarerecog-nizedasanexpenseonastraight-linebasisovertheaverageperioduntilthebenefitsbecomevested.Ifthebenefitsbecomevestedimmediatelyfol-lowingtheintroductionof,orchangesto,abenefitplan,pastservicecostsarerecognizedimmediately.

Actuarialgainsandlossesarisingfromexperience-basedadjustmentsandchangesinactuarialassumptionsarerecognizedintheperiodinwhichtheyoccur,withinothercomprehensiveincomeforretirementbenefitsandwithintheincomestatementforjubileebenefits.

Termination benefitsEmployeeterminationbenefitsarerecognizedintheperiodwhenade-tailed plan listing the number and structure of employees to be discharged isdefinedandauthorisedbymanagementandannouncedtothetradeunions.

2.13 Revenue recognitionRevenueisrecognizeduponthedeliveryofservicesandproductsandcus-tomeracceptancethereofandtotheextentthatitisprobablethateconomicbenefitswillflowtotheGroupandtherevenuecanbemeasuredreliably.Revenue for rendering services and customer equipment sales is shown net ofvalueaddedtaxanddiscounts.Revenueismeasuredatthefairvalueofconsideration received or receivable.

TheGrouprecognisesrevenueasfollows:

The Group provides customers with narrow and broadband access to its fixed,mobileandTVdistributionnetworks.Servicerevenuesarerecognizedwhen the services are provided in accordance with contractual terms and conditions.Airtimerevenueisrecognizedbaseduponminutesofuseandcontracted fees less credits and adjustments for discounts, while subscrip-tionandflatraterevenuesarerecognizedintheperiodtheyrelateto.

Revenuesfromprepaidcardsarerecognizedwhenusedbyacustomerorwhenthecreditsexpirewithunusedtraffic.

Interconnectrevenuegeneratedfromcallsandothertrafficthatoriginatesinotheroperators’networksisrecognizedasrevenueatthetimewhenthecall is received in the Group’s network. The Group pays a proportion of

the revenue it collects from its customers to other operators for calls and othertrafficthatoriginateintheGroup’snetworkbutuseotheroperators’networks. These charges are recorded within interconnection and other fees to operators.

Contentrevenueisrecognizedgrossornetoftheamountduetothecontentprovider. Depending on the nature of relationship with the content provider, the gross presentation is used when the Group acts as a principal in the transactionwiththefinalcustomer.Contentrevenueisrecognizednet,iftheGroup acts as an agent i.e. the content provider is responsible for the service content and the Group does not assume the risks and rewards of ownership.

Revenue from multiple revenue arrangements is considered as compris-ingtheidentifiableandseparablecomponents,towhichgeneralrevenuerecognition criteria can be applied separately. Numerous service offers are made up of two components, a product and a service. Once the separable componentshavebeenidentified,theamountreceivedorreceivablefromacustomer is allocated to the individual deliverables based on each compo-nent’sfairvalue.Theamountallocabletoadelivereditem(s)islimitedtotheamount that is not contingent upon the delivery of additional items or meet-ingotherspecifiedperformanceconditions(thenoncontingentamount).

Revenuefromsalesofequipmentisrecognizedwhentheequipmentisdelivered and installation is completed. Completion of an installation is a prerequisiteforrecognizingrevenueonsuchsalesofequipmentwhereinstallationisnotsimpleinnatureandfunctionallyconstitutesasignificantcomponent of the sale.

Revenuefromtheoperatingleasesofequipmentisrecognizedonastraight-line basis over the period of the lease.

Activation fees and subscriber acquisition costsActivationfeesaredeferredovertheexpectedcustomerretentionperiod.This period is estimated on the basis of the anticipated term of the cus-tomer relationship under the arrangement which generated the activation fee. Subscriber acquisition costs primarily include the loss on the handsets and fees paid to subcontractors that act as agents to acquire new custom-ers.Subscriberacquisitioncostsareexpensedasincurred.

Deferred income – Customer loyalty programThe Group has operated the customer loyalty program until 2011. As part of the program, the Group has granted points to the participants, which could be redeemed in future periods for free or discounted goods or services. Revenue allocated to the points granted in sale transaction based on their fair value was deferred when points were granted to customers. Revenue wasrecognizedwhenthecustomersreceivedbenefitsfromtheprogram.

IT revenuesContracts for network services, which consist of the installation and opera-tion of communication networks for customers, have an average duration of2to3years.Revenuesforvoiceanddataservicesarerecognizedundersuch contracts when used by the customer. Revenue from system integra-tioncontractsrequiringthedeliveryofcustomizedproductsand/orservicesisrecognizedwhenthecustomizedcomplexsolutionisbeingdeliveredandaccepted by a customer.

Revenuefrommaintenanceservices(generallyfixedfeepermonth)isrecognizedoverthecontractualperiodorwhentheservicesareprovided.Revenue from repairs, which are not part of the maintenance contract, billed onthebasisoftimeandmaterialused,isrecognizedwhentheservicesareprovided.


Revenue from hardware and software sales or sales-type leases is recognizedwhentheriskofownershipissubstantiallytransferredtothecustomer,providedtherearenounfulfilledobligationsthataffectthecus-tomer’sfinalacceptanceofthearrangement.Anycostsoftheseobligationsarerecognizedwhenthecorrespondingrevenueisrecognized.

Revenuefrominternallydevelopedsoftwareforfixed-pricecontractsisgenerallyrecognizedbasedonthepercentage-of-completiontakingintoac-count the proportion that contract costs incurred for work performed bear to the estimated total contract costs.

Interest and dividendsInterestincomeisrecognizedusingtheeffectiveinterestmethod.Dividendincomeisrecognizedwhentherighttoreceivepaymentisestablished.

2.14 LeasesThe determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an assessment of whetherthefulfilmentofthearrangementisdependentontheuseofaspe-cificassetorassetsandthearrangementconveysarighttousetheasset.

Leasesofassetsinwhichasignificantportionoftherisksandrewardsofownershipareretainedbythelessorareclassifiedasoperatingleases.Pay-ments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease.

Whenanoperatingleaseisterminatedbeforetheleaseperiodhasexpired,anypaymentmadetothelessorbywayofpenaltyisrecognizedasanexpenseintheperiodinwhichtheterminationtakesplace.

ThecontractsareanalyzedbasedontherequirementsofIFRIC4,andifthey include embedded lease elements, the revenues attributable to these arerecognizedaccordingtoIAS17.

Operating lease – the Group as lessorAssets leased to customers under operating leases are included in property andequipmentinthestatementoffinancialposition.Theyaredepreciatedovertheirexpectedusefullivesonabasisconsistentwithsimilarassets.Rentalincomeisrecognizedasrevenueonastraight-linebasisoverthelease term.

Finance lease – the Group as lessorLeasesofassetswheretheGrouptransferssubstantiallyallthebenefitsandrisksofownershiparerecognizedanddisclosedasrevenueagainstafinanceleasereceivable.Therevenueequalstheestimatedpresentvalueof the future minimum lease payments receivable and any unguaranteed residualvalue(netinvestmentinthelease).Thecostoftheassetsoldinafinanceleasetransactionisrecognizedatthecommencementofthelease.Each lease receipt is then allocated between the receivable and interest incomesoastoachieveaconstantrateofreturnonthefinancereceivablebalance outstanding. The interest element of the lease receipt is recog-nizedininterestincome.

Operating lease – the Group as lesseeCosts in respect of operating leases are charged to the income statement on a straight-line basis over the lease term.

Finance lease – the Group as lessee Leases of property and equipment where the Group assumes substantially allthethebenefitsandrisksofownershipareclassifiedasfinanceleases.Financeleasesarecapitalizedatthefairvalueoftheassetoriflower,atthe

estimated present value of the future minimum lease payments. Each lease paymentisallocatedbetweenthefinanceliabilityandinterestexpensesoas to achieve a constatnt rate of interest on the outstanding lease payable. Assetsacquiredunderfinanceleasecontractsaredepreciatedovertheshorter of the lease term or the useful life of the asset.

2.15 Operating profitOperatingprofitisdefinedastheresultbeforeincometaxesandfinancialincomeandexpenses.ForfinancialincomeandexpensesrefertoNotes9and 10 respectively.

2.16 Foreign currency translationTransactions denominated in foreign currencies are translated into functionalcurrencyusingtheexchangeratesprevailingatthedateofthetransaction. Monetary assets and liabilities denominated in foreign cur-renciesaretranslatedintofunctionalcurrencyusingtheexchangeratesprevailingatthestatementoffinancialpositiondate.Allforeignexchangedifferencesarerecognizedwithinfinancialincomeorexpenseintheperiodin which they arise.

2.17 TaxesThetaxexpensefortheperiodcomprisescurrentanddeferredtax.Taxisrecognizedintheincomestatement,excepttotheextentthatitrelatestoitemsrecognizedinothercomprehensiveincome.Inthiscase,thetaxisalsorecognizedinothercomprehensiveincome.

Current income taxCurrentincometaxassetsandliabilitiesforthecurrentandpriorperiodsaremeasuredattheamountexpectedtoberecoveredfromorpaidtothetaxauthorities.Thetaxratesandtaxlawsusedtocalculatetheamountsarethosesubstantivelyenactedatthestatementoffinancialpositiondate.

Deferred taxDeferredtaxisprovidedusingtheliabilitymethodontemporarydifferencesatthestatementoffinancialpositiondatebetweenthetaxbasesofassetsandliabilitiesandtheircarryingamountsforfinancialreportingpurposes.

Deferredtaxliabilitiesarerecognizedforalltaxabletemporarydifferences,exceptwherethedeferredtaxliabilityarisesfromtheinitialrecognitionofgoodwill or of an asset or liability in a transaction that is not a business com-bination and, at the time of the transaction, affects neither the accounting profitnortaxableprofitorloss.

Deferredtaxassetsarerecognizedforalldeductibletemporarydifferences,carry-forwardofunusedtaxlossestotheextentthatitisprobablethatataxableprofitwillbeavailableagainstwhichthedeductibletemporarydif-ferencesandthecarry-forwardofunusedtaxlossescanbeutilised,exceptwherethedeferredtaxassetarisesfromtheinitialrecognitionofanassetorliability in a transaction that is not a business combination and, at the time ofthetransaction,affectsneithertheaccountingprofitnortaxableprofitorloss.

Thecarryingamountofdeferredtaxassetsisreviewedateachstatementoffinancialpositiondateandreducedtotheextentthatitisnolongerprob-ablethatsufficienttaxableprofitwillbeavailabletoallowallorpartofthedeferredtaxassettobeutilised.


2.18 Significant accounting judgements, estimates and assumptionsThepreparationoftheGroup‘sfinancialstatementsrequiresmanagementto make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent liabilities reported at the end of the period and the reported amounts of revenues andexpensesforthatperiod.Actualresultsmaydifferfromtheseesti-mates.

In the process of applying the Group‘s accounting policies, management has made the following judgements, estimates and assumptions which havethemostsignificanteffectontheamountsrecognizedinthefinancialstatements:

Useful lives of non-current assets The estimation of the useful lives of non-current assets is a matter of judge-mentbasedontheGroup’sexperiencewithsimilarassets.TheGroupreviews the estimated remaining useful lives of non-current assets annually. Changesintheexpectedusefullifeortheexpectedpatternofconsump-tionoffutureeconomicbenefitsembodiedintheassetareaccountedforbychangingtheamortizationperiodormethod,asappropriate,andaretreated as changes in accounting estimates. Management’s estimates and judgements are inherently prone to inaccuracy for those assets for which no previousexperienceexists.

The Group reviewed useful lives of non-current assets during 2011 and changedaccountingestimateswhereappropriate.Thetablesummarizesnet(decrease)/increaseindepreciationchargeforthefollowingcatego-riesoffixedassets:

thousandsofEUR 2011 2012 2013 2014 After 2014

Radio base stations (1,165) (1,689) (879) (623) (640)

Equipment and special equipment 3,998 3,810 1,715 1,676 1,277

Switching equipment - mobile network 403 1,132 - - -

Other (buildings, halls and other equipment) 64 181 45 22 44

Customer relationshipsThe Group maintains record of customer relationships obtained during the acquisition of control of T-Mobile and PosAm and regularly evaluates ap-propriatnessofusefullivesusedtoamortizetheseintangibleassetsonthebasis of churn of customers acquired through the business combination.

EasementsOn disposal of certain properties where technological equipment is sited and required for the Group’s operations, the Group enters into agreements to obtain easement rights to continue to use and access this equipment for extendedperiods.Managementhasdetermined,basedonanevaluationof the terms and conditions of these sales agreements, that the Group does notretainthesignificantrisksandrewardsofownershipofthepropertiesandaccountsforeasementsasaprepaidexpense.

Assessment of impairment of goodwill Goodwill is tested annually for impairment as further described in Note 2.4 using estimates detailed in Note 15.

Asset retirement obligationThe Group enters into lease contracts for land and premises on which mo-

bile communication network masts are sited. The Group is committed by these contracts to dismantle the masts and restore the land and premises to their original condition. Management anticipates the probable settlement date of the obligation to equal useful life of construction of a mast, which is estimated to be 50 years. The remaining useful life of masts ranges from 31 to 50 as at 31 December 2011. Management’s determination of the amount oftheassetretirementobligation(Note26)involvesthefollowingestimates(inadditiontotheestimatedtimingofcrystallisationoftheobligation):

a)anappropriaterisk-adjusted,pre-taxdiscountratecommensuratewiththe Group’s credit standing;

b)theamountsnecessarytosettlefutureobligations;c)inflationrate.

Provisions and contingent liabilitiesAssetoutinNotes26and29,theGroupisaparticipantinseverallawsuitsand regulatory proceedings. When considering the recognition of a provi-sion,managementjudgestheprobabilityoffutureoutflowsofeconomicresources and estimates the amount needed to settle the possible or pro bable obligation. Such judgements and estimates are continually reassessedtakingintoconsiderationexperiencewithsimilarcases.

2.19 ComparativesCertainbalancesincludedinthecomparativefinancialstatementshavebeenreclassifiedtoconformtothecurrentyearpresentation.Suchreclassifications,inaccordancewithIAS1.38,werecarriedoutinordertoenhance inter-period comparability of information and comprise the follow-ingchanges:

a)StatutoryreservefundofT-Mobileasof30June2010inamountofEUR24,787thousandisdisclosedinStatutoryreservefundin2010comparatives.Inthe2010financialstatementsthisitemwaspresentedwithin Retained earnings.

b)OtherreservesofEUR82,355thousandisdisclosedinRetainedearn-ingsin2010comparatives.Inthe2010financialstatementsthisitemwas presented at separate line in Shareholder’s equity.

c)BalanceofdeferredtaxassetofEUR79thousandisdisclosedatseparatelinewithinAssetsinthestatementoffinancialposition2010comparatives.Inthe2010statementoffinancialpositionthisitemwaspresentedwithinDeferredtaxliabilities.

d)Balanceofearn-outpayabletotheformerownerofPosAmamountingtoEUR2,378thousandisdisclosedinNon-currentotherpayables(Note24)inthe2010comparatives.Inthe2010Note25thisitemwaspre-sentedwithinNon-currentprovisions.Thereclassificationwasreflectedalsointhestatementofcashflows.BalanceofEUR143thousandisdisclosed in Interest income, net in the 2010 comparatives. In the 2010 statementofcashflowsthisitemwaspresentedwithinMovementsinprovisions.

e)Balanceofputoption-liabilityofEUR11,282thousandisdisclosedatseparatelineinNon-currentotherpayables(Note24)inthe2010comparatives. In the 2010 Note 23 this item was presented within Other non-current payables.

f) BalanceofothertelecommunicationservicesofEUR1,898thousandisdisclosedinContentfees(Note7)inthe2010comparatives.Inthe2010 Note 7 this item was presented within Other operating costs.


g)BalanceofotherfeestoTelecommunicationsOfficeofEUR526thou-sand is disclosed in Frequency and other fees to Telecommunications Office(Note7)inthe2010comparatives.Inthe2010Note7thisitemwas presented within Other operating costs.

h)BalanceoffeespaidtoparentcompanyofEUR1,400thousandisdisclosedinFeespaidtoDTAG(Note7)inthe2010comparatives.Inthe 2010 Note 7 this item was presented within Other operating costs.

Reclassificationofbalanceshasnoimpactonbalancesinthestatementoffinancialpositionasof1January2010,thereforenoopeningstatementoffinancialpositionasat1January2010ispresentedinthesefinancialstatements.

2.20 Adoption of IFRS during the yearStandards, interpretations and amendments to published standards effective for the Group’s accounting period beginning on 1 January 2011 which are relevant to the Group’s operations

� IAS24RelatedPartyDisclosures(Revised),effectiveforperiodsbegin-ning on or after 1 January 2011 Thedefinitionofarelatedpartyhasbeenclarifiedtosimplifytheidentifi-cationofrelatedpartyrelationships,particularlyinrelationtosignificantinfluenceandjointcontrol.Apartialexemptionfromthedisclosureshas been included for government-related entities, whereby the general disclosure requirements of IAS 24 will not apply. Instead, alternative disclosureshavebeenincluded,requiring:

� The name of the government and the nature of its relationship with the reporting entity;

� Thenatureandamountofindividuallysignificanttransactions; � Aqualitativeorquantitativeindicationoftheextentofothertransac-tionsthatarecollectivelysignificant.

RetrospectiveapplicationinlinewithIAS8AccountingPolicies,Changes in Accounting Estimates and Errors.

TheSlovakGovernmenthassignificantinfluenceontheGroupthrough49%shareholding.TheGermanFederalGovernmenthassignificantinfluenceonDeutscheTelekomAG,theultimateparentofSlovakTelekom.TheGroupusedapartialexemptionavailableforthegovern-mentrelatedentitiesandprovidedalternativesimplifieddisclosures(Note28).

� AmendmenttoIAS32FinancialInstruments:Presentation–Classifica-tion of Rights Issues, effective for annual periods beginning on or after 1 February 2010 Thedefinitionofafinancialliabilityhasbeenamendedtoclassifyrightsissues(andcertainoptionsorwarrants)asequityinstrumentsif:

� Therightsaregivenproratatoalloftheexistingownersofthesameclass of an entity’s non-derivative equity instruments;

� Therightsaretoacquireafixednumberoftheentity’sownequityinstrumentsforafixedamountinanycurrency.


The changes resulting from the amendment to IAS 32 are not relevant for the Group.

� Improvements to IFRS issued in May 2010, effective for annual periods beginning on or after 1 July 2010 and 1 January 2011 concern the fol-lowingstandards:

� IFRS 1 First-time Adoption of International Financial Reporting Standards The standard is not relevant for the Group.

� IFRS 3 Business Combinations

� Clarifiesthatthecontingentconsiderationsfrombusinesscombi-nations that occurred before the effective date of revised IFRS 3 (issuedinJanuary2008)willbeaccountedforinaccordancewiththe guidance in the previous version of IFRS 3.

The accounting treatment of contingent consideration that occurred before the effective date of revised IFRS is in line with the guidance in the previous version of IFRS 3. The amendment has no impact on the Group.

� Requires measurement of non-controlling interests that are not present ownership interest or do not entitle the holder to a proportionate share of net assets in the event of liquidation at fair value (unless another measurement basis is required by other IFRSstandards).

The amendment is not relevant for the Group since all the subsidiaries are fully consolidated.

� Provides guidance on the acquiree’s share-based payment arrangements that were un-replaced and voluntarily replaced as a result of a business combination.

The amendment is not relevant for the Group.

� IFRS 7 Financial Instruments Disclosures

� Amendeddisclosurerequirementsemphasizetheinteractionbetween quantitative and qualitative disclosures about the nature andextentofrisksassociatedwithfinancialinstruments.

The amendment is relevant for the Group and is applied as required by IFRS 7.

� Removes the requirement to disclose carrying amount of rene-gotiatedfinancialassetsthatwouldotherwisebepastdueorimpaired.


� Replaces the requirement to disclose fair value of collateral by a moregeneralrequirementtodiscloseitsfinancialeffect.

The amendment is not relevant for the Group. Clarifiesthatanentityshoulddisclosetheamountofforeclosedcollateral held at the reporting date, and not the amount obtained


during the reporting period.


� IAS 1 Presentation of Financial Statements

� Clarifiesthatanentitywillpresentananalysisofothercom-prehensive income for each component of equity, either in the statementofchangesinequityorinthenotestothefinancialstatements.

The amendment is relevant for the Group and has already been adoptedbytheGroupinitspreviousyear’sfinancialstatements.

� IAS 27 Consolidated and Separate Financial Statements

� ClarifiesprospectiveapplicationofconsequentialamendmentstoIAS21,IAS28andIAS31thatresultfromchangestoIAS27.


� IAS 34 Interim Financial Reporting

The standard is not relevant for the Group.

� IFRIC 13 Customer Loyalty Programmes

� Themeaningof‘fairvalue’isclarifiedinthecontextofmeasuringaward credits under customer loyalty programmes.

The amendment is relevant for the Group. Fair value used conforms totheIFRIC13definition.

The above amendments resulted in additional or revised disclosures, but had no material impact on measurement or recognition of transac-tionsandbalancesreportedinthesefinancialstatements.

� Amendment to IFRS 1 First-time Adoption of International Financial ReportingStandards–LimitedExemptionfromComparativeIFRS7Dis-closures for First-time Adopters, effective for annual periods beginning on or after 1 July 2010 The amendment is not relevant for the Group.

� AmendmenttoIFRIC14IAS19–TheLimitonaDefinedBenefitAsset,Minimum Funding Requirements and their Interaction (Prepayments of a MinimumFundingRequirement),effectiveforannualperiodsbeginningon or after 1 January 2011 The amendment is not relevant for the Group.

� IFRIC19ExtinguishingFinancialLiabilitieswithEquityInstruments,ef-fective for annual periods beginning on or after 1 July 2010 The amendment is not relevant for the Group.

Standards, interpretations and amendments to published standards that have been published, are not effective for accounting periods start-ing on 1 January 2011 and which the Group has not early adopted

� Transfers of Financial Assets, Amendments to IFRS 7 Financial Instru-ments:Disclosures,effectiveforannualperiodsbeginningonorafter1July 2011 Theamendmentrequiresadditionaldisclosuresinrespectofriskexpo-suresarisingfromtransferredfinancialassets.Theamendmentincludesa requirement to disclose by class of asset the nature, carrying amount andadescriptionoftherisksandrewardsoffinancialassetsthathavebeen transferred to another party, yet remain on the entity’s balance sheet. Disclosures are also required to enable a user to understand the amount of any associated liabilities, and the relationship between the financialassetsandassociatedliabilities.Wherefinancialassetshavebeenderecognized,buttheentityisstillexposedtocertainrisksandrewards associated with the transferred asset, additional disclosure is required to enable the effects of those risks to be understood.

� IFRS9FinancialInstruments,Part1:ClassificationandMeasurement,effective for annual periods beginning on or after 1 January 2015 IFRS 9, issued in November 2009, replaces those parts of IAS 39 FinancialInstruments:RecognitionandMeasurement,relatingtotheclassificationandmeasurementoffinancialassets.IFRS9wasfurtheramendedinOctober2010toaddresstheclassificationandmeasure-mentoffinancialliabilities.Keyfeaturesofthestandardareasfollows:

� Financialassetsarerequiredtobeclassifiedintotwomeasurementcategories:thosetobemeasuredsubsequentlyatfairvalue,andthosetobemeasuredsubsequentlyatamortizedcost.Thedecisionistobemadeatinitialrecognition.Theclassificationdependsontheentity’sbusinessmodelformanagingitsfinancialinstrumentsandthecontractualcashflowcharacteristicsoftheinstrument.

� Aninstrumentissubsequentlymeasuredatamortizedcostonlyifitisadebtinstrumentandboth(i)theobjectiveoftheentity’sbusinessmodelistoholdtheassettocollectthecontractualcashflows,and(ii)theasset’scontractualcashflowsrepresentpaymentsofprincipalandinterestonly(thatis,ithasonly“basicloanfeatures”).Allotherdebtinstrumentsaretobemeasuredatfairvaluethroughprofitorloss.

� All equity instruments are to be measured subsequently at fair value. Equity instruments that are held for trading will be measured at fairvaluethroughprofitorloss.Forallotherequityinvestments,anirrevocable election can be made at initial recognition, to recognise unrealised and realised fair value gains and losses through other comprehensiveincomeratherthanprofitorloss.Thereistobenorecyclingoffairvaluegainsandlossestoprofitorloss.Thiselectionmay be made on an instrument-by-instrument basis. Dividends are to bepresentedinprofitorloss,aslongastheyrepresentareturnoninvestment.

� MostoftherequirementsinIAS39forclassificationandmeasure-mentoffinancialliabilitieswerecarriedforwardunchangedtoIFRS9. The key change is that an entity will be required to present the effectsofchangesinowncreditriskoffinancialliabilitiesdesignatedatfairvaluethroughprofitorlossinothercomprehensiveincome.


While adoption of IFRS 9 is mandatory from 1 January 2015, earlier adoption is permitted.

� IFRS 10 Consolidated Financial Statements, effective for annual periods beginning on or after 1 January 2013 IFRS 10 replaces all of the guidance on control and consolidation in IAS 27 Consolidated and Separate Financial Statements and SIC–12 Con-solidation–Special-purposeEntities.IFRS10changesthedefinitionofcontrol so that the same criteria are applied to all entities to determine control.Thisdefinitionissupportedbyextensiveapplicationguidance.

� IFRS 11 Joint Arrangements, effective for annual periods beginning on or after 1 January 2013 IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities - Non-Monetary Contributions by Venturers. Changes inthedefinitionshavereducedthenumberoftypesofjointarrange-mentstotwo:jointoperationsandjointventures.Theexistingpolicychoice of proportionate consolidation for jointly controlled entities has been eliminated. Equity accounting is mandatory for participants in joint ventures.

� IFRS 12 Disclosures of Interests in Other Entities, effective for annual periods beginning on or after 1 January 2013 IFRS 12 applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. It replacesthedisclosurerequirementscurrentlyfoundinIAS28,Invest-ments in associates. IFRS 12 requires entities to disclose information thathelpsfinancialstatementreaderstoevaluatethenature,risksandfinancialeffectsassociatedwiththeentity’sinterestsinsubsidiaries, associates, joint arrangements and unconsolidated structured entities. To meet these objectives, the new standard requires disclosures in a numberofareas,includingsignificantjudgementsandassumptionsmade in determining whether an entity controls, jointly controls, or sig-nificantlyinfluencesitsinterestsinotherentities,extendeddisclosuresonshareofnon-controllinginterestsingroupactivitiesandcashflows,summarisedfinancialinformationofsubsidiarieswithmaterialnon-controlling interests, and detailed disclosures of interests in unconsoli-dated structured entities.

� IFRS 13 Fair Value Measurement, effective for annual periods beginning on or after 1 January 2013 IFRS13aimstoimproveconsistencyandreducecomplexitybyprovid-ingareviseddefinitionoffairvalue,andasinglesourceoffairvaluemeasurement and disclosure requirements for use across IFRSs.

� Amendment to IAS 1 Presentation of Financial Statements – Presen-tation of items of other comprehensive income, effective for annual periods beginning on or after 1 July 2012 The amendment changes the disclosure of items presented in other comprehensive income. The amendments require entities to separate items presented in other comprehensive income into two groups, based onwhetherornottheymaybereclassifiedtoprofitorlossinthefuture.ThesuggestedtitleusedbyIAS1haschangedto‘Statementofprofitorloss and other comprehensive income’.

� IAS19(Revised)EmployeeBenefits,effectiveforannualperiodsbegin-

ning on or after 1 January 2013 Theamendmentmakessignificantchangestotherecognitionandmeasurementofdefinedbenefitpensionexpenseandterminationbenefits,andtothedisclosuresforallemployeebenefits.Thestandardrequiresrecognitionofallchangesinthenetdefinedbenefitliability(asset)whentheyoccur,asfollows:(i)servicecostandnetinterestinprofitorloss;and(ii)re-measurementsinothercomprehensiveincome.

� IAS27(Revised)SeparateFinancialStatements,effectiveforannualperiods beginning on or after 1 January 2013 IAS 27 was changed and its objective is now to prescribe the account-ing and disclosure requirements for investments in subsidiaries, joint venturesandassociateswhenanentitypreparesseparatefinancialstatements.Theguidanceoncontrolandconsolidatedfinancialstate-ments was replaced by IFRS 10, Consolidated Financial Statements.

� IAS28(Revised)InvestmentsinAssociatesandJointVentures,effectivefor annual periods beginning on or after 1 January 2013 TheamendmentstoIAS28resultedfromtheBoard’sprojectonjointventures. When discussing that project, the Board decided to incorpo-rate the accounting for joint ventures using the equity method into IAS 28becausethismethodisapplicabletobothjointventuresandassoci-ates.Withthisexception,otherguidanceremainedunchanged.

� Improvements to IFRS (IFRS 1 First-time Adoption of IFRS, IAS 1 Presen-tationofFinancialStatements,IAS16Property,PlantandEquipment,IAS32FinancialInstruments:Presentation,IAS34InterimFinancialReporting),effectiveforannualperiodsbeginningonorafter1January2013.

� Otherrevisedstandardsandinterpretations: The amendments to IFRS 1 First-time adoption of IFRS, relating to se-verehyperinflationandeliminatingreferencestofixeddatesforcertainexceptionsandexemptions,willnothaveanyimpactonthesefinancialstatements.TheamendmenttoIAS12IncomeTaxes,whichintroducesa rebuttable presumption that an investment property carried at fair value is recovered entirely through sale, will not have any impact on thesefinancialstatements.IFRIC20StrippingCostsintheProductionPhase of a Surface Mine, considers when and how to account for the benefitsarisingfromthestrippingactivityinminingindustry.

The future implications of standards, interpretations and amendments that are relevant to the Group are being continuously evaluated and will be ap-plied in accordance with the requirements if applicable.


3. Financial risk management

TheGroupisexposedtoavarietyoffinancialrisks.TheGroup’sriskmanagementpolicyaddressestheunpredictabilityoffinancialmarketsand seeks to minimise potential adverse effects on the performance of the Group.

TheGroup’sfinancialinstrumentsincludecashandcashequivalents,short-term deposits, held-to-maturity investments and loans. The main purpose of these instruments is to manage the liquidity of the Group.

TheGrouphasvariousotherfinancialassetsandliabilitiessuchastradereceivables and trade payables which arise from its operations.

The Group enters into derivative transactions. The purpose is to manage the foreign currency risk arising from the Group’s operations. The Group does not perform speculative trading with the derivative instruments.

ThemainrisksarisingfromtheGroup’sfinancialinstrumentsaremarketrisk,creditriskandliquidityrisk.TheTreasuryandTaxesDepartmentisresponsibleforfinancialriskmanagement,inaccordancewithguidelinesapproved by the Board of Directors and the DT AG Treasury Department. TheTreasuryandTaxesDepartmentworksinassociationwiththeGroup’soperating units and with the DT AG Treasury Department. There are policies inplacetocoverspecificareassuchasmarketrisk,creditrisk,liquidityrisk,theinvestmentofexcessfundsandtheuseofderivativefinancialinstru-ments.

3.1 Market riskMarketriskistheriskthatthefairvalueorfuturecashflowsofafinancialinstrumentwillfluctuatebecauseofchangesinmarketprices.Marketriskcomprisesthreetypesofrisk:foreigncurrencyrisk,interestrateriskandother price risk.

3.1.1 Foreign currency riskForeigncurrencyriskistheriskthatthefairvalueoffuturecashflowsofafinancialinstrumentwillfluctuatebecauseofchangeinforeignexchangerates.

TheGroupisexposedtotransactionalforeigncurrencyriskarisingfrominternationalinterconnectivity.Inaddition,theGroupisexposedtorisksarisingfromcapitalandoperationalexpendituresdenominatedinforeigncurrencies.

The Group can use forward currency contracts, currency swaps or spot-markettradingtoeliminatetheexposuretowardsforeigncurrencyrisk.Hedgingfinancialinstrumentsmustbeinthesamecurrencyasthehedgeditem. It is the Group’s policy to negotiate the terms of the hedge derivatives tomatchthetermsofthehedgeditemtomaximizehedgeeffectiveness.Such a hedge however does not qualify for hedge accounting under the specificrulesofIAS39.

Short-term cash forecasts are prepared on a rolling basis to quantify the Group’sexpectedexposure.TheGroup’sriskmanagementpolicyrequiresthehedgingofeverycashflowdenominatedinforeigncurrencyexceedingtheequivalentofEUR50thousand.

In 2010 and 2011, the Group entered into currency forward contracts tohedgeitsforeigncurrencyexposurearisingonitsfirmcommitmentsforfuturecapitalandoperatingexpenditures.Theforwardcontractsare

expectedtomatureonthedateoftheanticipatedforeigncurrencycashexpenditures.TheGroup’smainexposureistochangesinUSDforeignexchangerates,withimmaterialriskrelatedtofinancialassetsandfinancialliabilities denominated in other foreign currencies.

ThefollowingtabledetailsthesensitivityoftheGroup’sprofitbeforetaxandequitytoa10%increase/decreaseintheEURagainstUSD,withallothervariables held as constant. The 10% change represents management’s as-sessmentofthereasonablypossiblechangeinforeignexchangeratesandis used when reporting foreign currency risk internally in line with treasury policies.

thousandsofEUR 2011 2010Profitbeforetax DepreciationofEURby10% (106) 132

AppreciationofEURby10% 87 (108)Equity DepreciationofEURby10% (86) 107

AppreciationofEURby10% 70 (88)

3.1.2 Interest rate riskTheGroup’sincomeandoperatingcashflowsaresubstantiallyinde-pendent of changes in market interest rates. The Group entered into a masteragreementwithDTAGinOctober2008basedonwhichtheGroupprovidesloanstoDTAG(Note21).

TheGroup’sexposuretotheriskofchangesinmarketinterestratesrelatesmainly to the Group’s held–to-maturity investments. The Group seeks to optimiseitsexposuretowardsinterestrateriskusingamixoffixed–rateandfloating–ratesecurities.Attheendof2011,thesecuritiesportfolioconsistsoffixed-ratebondsandonetreasurybill.

The sensitivity of held-to-maturity investments to changes in interest rates is provided in Note 30.

3.1.3 Other price riskOtherpriceriskarisesonfinancialinstrumentsbecauseofchangesin,forexamplecommoditypricesorequityprices.TheGroupisnotexposedtosuch risks.

3.2 Credit riskCreditriskistheriskthatonepartytoafinancialinstrumentwillcauseafinanciallossfortheotherpartybyfailingtodischargeanobligation.

TheGroupisexposedtocreditriskfromitsoperatingactivitiesandcertainfinancingactivities.TheGroup’screditriskpolicydefinesproducts,maturi-tiesofproductsandlimitsforfinancialcounterparties.TheGrouplimitscreditexposuretoindividualfinancialinstitutionsandsecuritiesissuersonthe basis of the credit ratings assigned to these institutions by reputable rating agencies and these limits are reviewed on a regular basis. For credit ratings see Notes 21 and 22.

The Group establishes an allowance for impairment that represents its esti-mate of losses incurred in respect of trade and other receivables. Impair-mentlossesarerecognizedtocoverbothindividuallysignificantcreditriskexposures,andacollectivelosscomponentforassetsthatareassessednotto be impaired individually. Objective evidence of impairment for a portfolio ofreceivablesincludestheGroup’spastexperienceofcollectingpayments,aswellaschangesintheinternalandexternalratingsofcustomers.


Inrespectoffinancialassets,whichcomprisecashandcashequivalents,short-termdeposits,held-to-maturityinvestments,derivativefinancialinstruments,loansandtradereceivables,theGroup’sexposuretocreditriskarisesfromthepotentialdefaultofthecounterparty,withamaximumexposureequaltothecarryingamountofthesefinancialassets.InJune2011 the Group and Poštová banka, a.s. signed an Agreement about establishment of a right of lien on securities. The Group thus secured its receivablestomaximumprincipalamountofEUR50,000thousand.Intotal,Poštovábankapledged16,880piecesofthestatebondSK4120004565withanominalvalueofEUR56,000thousand.Noothersignificantagree-mentsreducingthemaximumexposuretocreditriskhadbeenconcludedat 31 December 2011.

TheGroupassessesitsfinancialinvestmentsateachreportingdatetodetermine whether there is any objective evidence that they are impaired. Afinancialinvestmentisconsideredtobeimpairedifobjectiveevidenceindicates that one or more events have had a negative effect on the esti-matedfuturecashflowsofthatinvestment.Significantfinancialinvestmentsaretestedforimpairmentonanindividualbasis.Theremainingfinancialinvestments are assessed collectively in groups that share similar credit risk characteristics.

Animpairmentlossinrespectofafinancialinvestmentiscalculatedasthe difference between its carrying amount and the present value of the estimatedfuturecashflowsdiscountedattheoriginaleffectiveinterestrate.Allimpairmentlossesarerecognizedinprofitorloss.Animpairmentlossis reversed if the reversal can be related objectively to an event occurring aftertheimpairmentlosswasrecognized.Thereversaloftheimpairmentlossisrecognizedinprofitorloss.

Thetablesummarisestheageingstructureofreceivables:

thousandsofEUR

At 31 December 2011 Neither past due nor impaired Past due but not impaired< 30 days 31-90 days 91-180days 181-365days >365days

Trade receivables 89,760 970 306 199 600 118Finance lease receivable 6,063 - - - - -


Trade receivables 94,685 619 103 32 42 99

Nosignificantindividuallyimpairedtradereceivableswereincludedintheprovision for impairment losses in 2011 and 2010.

Tradereceivablesthatarepastdueasatthestatementoffinancialpositiondate, but not impaired, are from creditworthy customers who have a good track record with the Group and, based on historical default rates, manage-

ment believes that no additional impairment allowance is necessary.

3.3 Liquidity riskLiquidityriskistheriskthatanentitywillencounterdifficultyinmeetingobligationsassociatedwithfinancialliabilitiesthataresettledbydeliveringcashoranotherfinancialasset.

TheGroup’sliquidityriskmitigationprinciplesdefinethelevelofcashandcash equivalents, marketable securities and the credit facilities available to the Group to allow it to meet its obligations on time and in full. The funding of liquidity needs is based on comparisons of income earned on cash and


3.4 Capital risk managementThe Group manages its capital to ensure its ability to support its business activitiesonanongoingbasis,whilemaximizingthereturntoitssharehold-ersandbenefitsforotherstakeholdersthroughoptimizationofitscapitalstructure to reduce the cost of capital. It takes into consideration any ap-plicable guidelines of the majority shareholder. No changes were made to the objectives, policies or processes in 2011.

The capital structure of the Group consists of equity attributable to share-holders, comprising issued capital, share premium, statutory reserve fund, retainedearningsandothercomponentsofequity(Note23).Themanage-ment of the Group manages capital measured in terms of shareholder’s equityamountingtoasat31December2011EUR1,641,208thousand(2010:EUR1,666,113thousand).

4. Business combinations

4.1 Subsidiary acquiredOn 29 January 2010, the Group acquired the majority of the voting shares and obtained control of PosAm, spol. s r.o., an unlisted company with its registeredseatatOdborárska21,83102Bratislava,SlovakRepublic,whichspecializesinITservices,ownsoftwaredevelopmentandhardwareand software licences sales and system integration. The business combina-tion was accounted for as if the acquirer had obtained a 100% interest in theacquireeduetoexistenceofput&calloptionsdescribedfurtherbelow.Accordingly, the consideration transferred includes the present value of theliabilityrelatedtotheacquisitionof49%ofPosAmundertheput&calloptions.

TheGroupacquiredPosAmbecauseitextendstherangeofservicesthatcan be offered to its clients. As a result of the acquisition, the Group is expectedtoincreaseitspresenceintheinformationandcommunicationstechnology markets.

ThetablesummarizesthematurityprofileoftheGroup’sfinancialliabilitiesbasedoncontractualundiscountedpayments:

thousandsofEUR

At 31 December 2011 On demand Less than 3 months 3 to 12 months Over 1 year TotalTrade payables 5,178 103,690 253 - 109,121Contingentconsideration(earn-out) - - 2,438 - 2,438Put option - liability - - - 11,692 11,692

At 31 December 2010 On demand Less than 3 months 3 to 12 months Over 1 year TotalTrade payables 5,505 106,561 15 - 112,081Contingentconsideration(earn-out) - - - 2,378 2,378Put option - liability - - - 11,282 11,282

cashequivalentsandheld-to-maturityinvestmentswiththecostoffinancingavailable on credit facilities, with the objective of holding predetermined minimum amounts of cash and cash equivalents and credit facilities avail-able on demand.


4.2 Consideration transferred

thousandsofEUR 29 January 2010Cash 10,733Contingentconsideration(i) 2,235Putoption-liability(ii) 9,889Total 22,857

(i)Theamountoftheearn-outpaymentisconditionalonthefinancialper-formanceofPosAmforthefinancialperiods2010and2011. The Group has assessed the nature of the contingent consideration andrecognizedaliabilityofEUR2,235thousandin2010,astheGroupincurred a contractual obligation to deliver cash to the seller. Conse-quently, the Group re-measured the liability at the reporting date 2010 to EUR2,378thousand(Note24)withthechangebeingrecognizedintheincome statement. In2011theGroupre-measuredvalueofliabilitytoEUR2,438thousandand the Group estimates this amount to be paid to the former owner of PosAm in 2012.

(ii)Followingtheacquisitionofa51%interestinPosAm,SlovakTelekom

obtained control over PosAm. Slovak Telekom and the former owner of PosAmalsoagreedonput&calloptionswhich,iftriggered,mayresultin the transfer of the residual 49% equity interest in PosAm to Slovak Telekom. Slovak Telekom concluded that terms of the transaction represent a contractual obligation to purchase the Group’s equity instrument. The fairvalueofsuchliability(i.e.presentvalueoftheredemptionamount)hasbeenreclassifiedfromequity(non-controllinginterest)tofinancialliabilities. TheliabilityofEUR9,889thousandwasthepresentvalueofaconsidera-tion related to acquisition of the residual 49%. The present value has been calculated on the basis of percentage of ownership of interest xaverageadjustedEBITDAfortwofinancialperiodsxprogressivecoef-ficient,anddiscounted.TheGroupre-measuredtheliabilityatthereport-ing date. The value of the liability at the year-end 2011 was changed and amountstoEUR11,692thousand(2010:EUR11,282thousand)(Note24).

Acquisition-relatedcostsofEUR155thousandhavebeenfullyexcludedfromtheconsiderationtransferredandhavebeenrecognizedasanex-pense in the year of acquisition, under Other operating costs in the income statement.

4.3 Assets acquired and liabilities assumed at the date of acquisitionThetablesummarizestheamountofassetsacquiredandliabilitiesas-sumedrecognizedasattheacquisitiondatetogetherwithidentifiableintangibleassets:

thousandsofEUR

Net book value (before

goodwill calculation

Identifiable intangible

assetsFair value of

net assets

Non-current assets 1,534 - 1,534

Current assets 6,185 - 6,185Cash 2,285 - 2,285Receivables 3,325 - 3,325Inventory 215 - 215Other assets and accruals 360 - 360

Newly recognized intangible assets - 14,200 14,200Brand - 900 900Customer relationships - 11,700 11,700Order backlog - 1,600 1,600

Liabilities 2,732 - 2,732Payables 2,004 - 2,004Provisions and other liabilities 297 - 297Incometaxandothertaxes 286 - 286Accruals 145 - 145

Deferred tax - 2,698 2,698NET ASSETS 4,987 11,502 16,489

ThefairvalueofreceivablesacquiredwasEUR3,325thousand,ofwhichtradereceivablesamountedtoEUR3,314thousand.ThegrosscontractualamountfortradereceivablesduewasEUR3,427thousand,ofwhichEUR113thousandwasexpectedtobenon-collectable.

ThefairvalueoftheidentifiableintangibleassetsacquiredwasEUR11,502thousandnetofthedeferredtaxliabilityofEUR2,698thousand.ThemostsignificantamountofEUR11,700thousandbelongedtoaCustomerRela-tionships intangible asset. For the purposes of purchase price allocation, theintangibleassetwasinterpretedasrelationswithbigandmedium-sizedcustomers only. The key drivers used in the valuation of customer relation-ships were attrition rates, value of the revenues per customer and EBITDA margins of the customer base.

Identifiableintangibleassetshadthefollowingusefullivesassigned:brand:4years,customerrelationships:15yearsandorderbacklog:1year.


4.4 Goodwill arising on acquisition

thousandsofEUR 29 January 2010Consideration transferred 22,857

Less:fairvalueofidentifiablenetassetsacquired (16,489)Goodwill arising on acquisition 6,368

Goodwill arose in the acquisition of PosAm as the consideration paid for the businesscombinationeffectivelyincludedamountsinrelationtothebenefitfromtheexpectedsynergies,revenuegrowth,futuremarketdevelopmentandthetrainedworkforceofPosAm.Thesebenefitsarenotrecognizedseparately from goodwill as they do not meet the recognition criteria for identifiableintangibleassets.

Noneofthegoodwillrecognizedisexpectedtobedeductibleforincometaxpurposes.

4.5 Net cash outflow on acquisition of subsidiary

thousandsofEUR 29 January 2010Consideration paid in cash 10,733

Less:cashandcashequivalentbalancesacquired (2,285)8,448

4.6 Impact of acquisition on the results of the GroupFrom the date of acquisition till the 31 December 2010, PosAm has con-tributedEUR26,753thousandofrevenue(netofintercompanyrevenues)andEUR2,798thousandtothenetprofitbeforetaxoftheGroup(netofintercompanyrevenuesandexpenses).Ifthebusinesscombinationhadtaken place at the beginning of the year 2010, revenue of the Group would havebeenEUR935,696thousandandtheprofitbeforetaxoftheGroupwouldhavebeenEUR150,030thousand.

5. Revenue

thousandsofEUR 2011 2010Fixednetworkcommunicationrevenue 208,330 237,226

Wholesale revenue 70,117 63,731IP / Internet revenue 101,125 97,145Total fixed network and broadband revenue 379,572 398,102

Mobile communication revenue 462,179 492,542

Other revenue 55,604 43,619Total revenue 897,355 934,263

6.Staffcosts

thousandsofEUR 2011 2010Wages and salaries 116,436 123,198Social security contributions 29,527 30,314

145,963 153,512

2011 2010Number of employees at period end 4,198 4,980

NumberofemployeesdoesnotincludeexpatriatesworkingfortheGroupasof31December2011:3(2010:4).

7. Other operating costs

thousandsofEUR 2011 2010Repairs and maintenance 22,263 21,081Outsourced services 11,860 14,841Marketing 24,800 32,542Energy 16,641 14,545Postal services 4,949 6,685Rentals and leases 19,486 20,489IT services 12,640 13,344Dealers’ commissions 21,759 23,388Material sold 2,865 3,862Business trips and training 2,656 2,475Frequency and other fees to Telecommunications Office(Note28) 7,353 7,000Content fees 15,768 11,729Consultancy 9,900 9,201Baddebtsexpenses 2,866 5,288Customer solutions 14,038 11,348Fees paid to DT AG 4,658 1,400Other 19,207 25,931Ownworkcapitalized (15,447) (16,885)

198,262 208,264


8.Otheroperatingincome

thousandsofEUR 2011 2010Gain on disposal of property and equipment, net 1,022 349Income from material sold 4,855 5,780Income from termination of loyalty program 2,167 -Reversalofimpairmentofassets(Note12,13) 289 4,147Other 5,880 5,461

14,213 15,737

9. Financial income

thousandsofEUR 2011 2010Reversal of impairment of held-to-maturity investments - 664Interest on short-term deposits 1,681 622Interest on intragroup loans 2,777 1,458Interest on held-to-maturity investments 1,356 938Interestfromfinancelease 121 -Netgainonfinancialinstrumentsheldfortrading - 7Other 891 851

6,826 4,540

10.Financialexpense

thousandsofEUR 2011 2010Unwindingofputoptionliability 411 1,393Amounts paid to former owner of PosAm 980 440Changeinfairvalueofearn-outpayable(Note24) 60 143Impairment of held-to-maturity investments 199 -Employeebenefits-interestcost 377 93Foreignexchangelosses,net 174 474Interest cost on restoration obligations 182 460Netlossonfinancialinstrumentsheldfortrading 52 -Bankchargesandotherfinancialexpense 88 132

2,523 3,135

11.Taxation

Themajorcomponentsofincometaxexpensefortheyearsended31Decemberare:

thousandsofEUR 2011 2010Currenttaxexpense 41,895 40,410Deferredtaxincome (12,252) (11,501)

Income tax expense reported in the income statement 29,643 28,909

Reconciliationbetweenthereportedincometaxexpenseandthetheoreti-calamountthatwouldariseusingthestatutorytaxrateisasfollows:

thousandsofEUR 2011 2010Profitbeforeincometax 141,541 149,768

Incometaxcalculatedatthestatutoryrateof19%(2010:19%) 26,893 28,456Effectofincomenottaxableandexpensesnottaxdeductible:Creation/(release)oflegalandregulatoryprovisions 67 (107)Impairment of goodwill 570 -Othertaxnon-deductibleitems,net 2,015 1,779

Taxcharge/(recovery)inrespectofprioryears 98 (1,219)Income tax at the effective tax rate of 21% (2010: 19%) 29,643 28,909


Deferredtaxassets(liabilities)fortheyearended31December2011areattributabletothefollowingitems:

thousandsofEUR 1 January 2011 Through income statementThrough other

comprehensive income 31 December 2011Differencebetweencarryingandtaxvalueoffixedassets (163,099) 14,178 - (148,921)Allowance for held-to-maturity investments 1,922 38 - 1,960Staff cost accruals 1,496 717 - 2,213Allowance for bad debts 3,591 (1,098) - 2,493Terminationbenefits 752 (316) - 436Other 4,483 (1,267) (627) 2,589Net deferred tax liability (150,855) 12,252 (627) (139,230)


thousandsofEUR 1 January 2010

Through business

combination

Through income

statementThrough other com-prehensive income 31 December 2010

Differencebetweencarryingandtaxvalueoffixedassets (171,381) (2,670) 10,952 - (163,099)Allowance for held-to-maturity investments 2,048 - (126) - 1,922Staff cost accruals 1,656 - (160) - 1,496Allowance for bad debts 3,214 - 377 - 3,591Terminationbenefits 667 - 85 - 752Other 3,993 - 373 117 4,483Net deferred tax liability (159,803) (2,670) 11,501 117 (150,855)

Deferredtaxassets(liabilities)arereflectedinthestatement offinancialpositionasfollows:

thousandsofEUR 2011 2010Deferredtaxassets 66 79Deferredtaxliabilities (139,296) (150,934)

(139,230) (150,855)

12. Assets held for sale

Land, buildings and related equipment

thousandsofEUR 2011 2010At 1 January 1,134 8,314Net transfer to and from property and equipment(Note13)

(978)

(7,253)

Reversalofimpairmentcharge(Note8) - 470Assets sold (156) (397)At 31 December - 1,134

TheGrouptransferredduring2011assetsofEUR978thousandtopropertyandequipment.TheseassetsceasedtomeetthecriteriatobeclassifiedasheldforsaleastheGroupdoesnotexpectthesaletobecompletedwithinoneyear.Therewasnofinancialimpactfromthetransaction.


13. Property and equipment

thousandsofEUR

Land and buildings

Duct, cable and other outside plant

Telephone exchanges and

related equipment

Radio and transmission

equipment Other

Constructionin progress

including advances TotalAt 1 January 2011Cost 177,428 969,757 1,248,939 294,151 277,514 50,846 3,018,635Depreciation (69,463) (418,165) (1,073,248) (215,217) (168,892) (725) (1,945,710)Net book value 107,965 551,592 175,691 78,934 108,622 50,121 1,072,925Additions 4,049 11,608 17,132 3,246 23,988 31,071 91,094Depreciation charge (6,695) (31,612) (58,185) (25,858) (31,012) - (153,362)Impairment charge (1,951) (40) (1,032) (1,106) (1,940) (685) (6,754)Reversal of impairment 135 35 12 - 40 67 289Disposals (1,016) (4) (180) (4) (331) (9) (1,544)Transfers 3,817 1,184 9,803 (663) 11,514 (25,124) 531Transfer from assets held for sale 974 3 - - 1 - 978At 31 December 2011Cost 183,047 976,989 1,252,651 315,108 310,564 56,778 3,095,137Depreciation (75,769) (444,223) (1,109,410) (260,559) (199,682) (1,337) (2,090,980)Net book value 107,278 532,766 143,241 54,549 110,882 55,441 1,004,157

Propertyandequipment,excludingmotorvehicles,isinsuredtoalimitofEUR25,000thousand(2010:EUR25,000thousand).MotorvehiclesareinsuredtoalimitofEUR2,500thousand(2010:EUR2,500thousand)fordamageonhealthandexpensesrelatedtodeathandEUR664thousandfordamagecausedbydestroyed,seizedorlostitems,lostprofits.

The impairment charge relates mainly to the buildings which the Group intends to be sold and to the equipment and other assets which are considered to be obsolete, has no future use and will be either sold or liquidated.

thousandsofEUR

Land and buildings

Duct, cable and other outside plant

Telephone

exchanges and related equipment

Radio and transmission

equipment Other

Constructionin progress

including advances TotalAt 1 January 2010Cost 157,151 956,388 1,262,188 292,335 255,511 40,280 2,963,853Depreciation (54,967) (391,785) (1,056,218) (192,165) (145,715) (814) (1,841,664)Net book value 102,184 564,603 205,970 100,170 109,796 39,466 1,122,189Acquisition through business combination

3 - - - 825 - 828

Additions 3,435 16,731 19,439 4,935 28,114 33,410 106,064Depreciation charge (8,790) (30,899) (58,397) (30,998) (32,891) - (161,975)Impairment charge (488) (212) (1,365) - (1,668) (653) (4,386)Reversal of impairment 3,677 - - - - - 3,677Disposals (231) (27) (97) - (361) (9) (725)Transfers 1,633 943 10,015 4,827 4,675 (22,093) -Transfer to and from assets held for sale

6,542 453 126 - 132 - 7,253

At 31 December 2010Cost 177,428 969,757 1,248,939 294,151 277,514 50,846 3,018,635Depreciation (69,463) (418,165) (1,073,248) (215,217) (168,892) (725) (1,945,710)Net book value 107,965 551,592 175,691 78,934 108,622 50,121 1,072,925


14. Intangible assets

thousandsofEUR Customer contracts Licenses Goodwill Software Other TotalAt 1 January 2011Cost 418,678 85,612 84,349 403,631 41,605 1,033,875Amortization (214,966) (49,026) - (360,207) (7,273) (631,472)Net book value 203,712 36,586 84,349 43,424 34,332 402,403Additions - 47,767 - 12,202 20,171 80,140Additions from internal developments - - - 218 - 218Amortizationcharge (36,497) (6,296) - (31,544) (416) (74,753)Impairment charge - - (3,000) - (40) (3,040)Transfers - - - 20,606 (21,137) (531)

At 31 December 2011Cost 423,381 133,379 84,349 430,866 35,892 1,107,867Amortization (256,166) (55,322) (3,000) (385,960) (2,982) (703,430)Net book value 167,215 78,057 81,349 44,906 32,910 404,437

InAugust2011theTelecommunicationOfficeoftheSlovakRepublicprolongedthelicensefortheprovisionofmobileservicesunderthefrequenciesof900MHz,1800MHzand450MHzforthepriceofEUR47,767thousand(Notes1,28).Carryingvalueofthelicenseasat31December2011isEUR45,777 thousand and license is valid until 31 August 2021.

SignificantpartofcustomercontractswasrecognizedattheacquisitionofT-MobileinDecember2004.Carryingvaluesofthosecustomercontractsasat31December2011andremainingusefullivesare:EUR115,169thousandand6yearsforpost-paidbusinesscustomers,EUR31,333thousandand3yearsforpost-paidresidentialcustomers,EUR4,571thousandand1yearforprepaidcustomers,EUR5,847thousandand4yearsforDNScustomers.

RemainingpartofcustomercontractswasrecognizedatacquisitionofsubsidiariesPosAm,ZoznamandZoznamMobilewithtotalnetbookvalueasat 31December2011ofEUR10,296thousand.

NetbookvalueofthecategoryOtherincludesIntangibleassetsinprogressofEUR32,353thousand(2010:EUR32,698thousand).For carrying value and impairment of goodwill refer to Note 15.

thousandsofEUR Customer contracts Licenses Goodwill Software Other TotalAt 1 January 2010Cost 406,978 85,612 77,981 379,643 26,630 976,844Amortization (178,654) (44,118) - (331,294) (5,514) (559,580)Net book value 228,324 41,494 77,981 48,349 21,116 417,264Acquisition through business combination 11,700 - 6,368 529 2,648 21,245Additions - - - 16,157 25,506 41,663Additions from internal developments - - - 568 - 568Amortizationcharge (36,312) (4,908) - (35,139) (1,760) (78,119)Impairment charge - - - (218) - (218)Transfers - - - 13,178 (13,178) -

At 31 December 2010Cost 418,678 85,612 84,349 403,631 41,605 1,033,875Amortization (214,966) (49,026) - (360,207) (7,273) (631,472)Net book value 203,712 36,586 84,349 43,424 34,332 402,403


15. Impairment of goodwill

For impairment testing, the goodwill acquired in business combinations hasbeenallocatedtoindividualcash-generatingunits,asfollows:

thousandsofEUR

T-Mobile PosAm

Zoznam & Zoznam

Mobile SpoluGoodwill at 1.1.2011 73,313 6,368 4,668 84,349Addition - - - -Impairment(Note14) - - (3,000) (3,000)Goodwill at 31.12.2011 73,313 6,368 1,668 81,349

T-Mobile The goodwill is tested for impairment by DT AG. Since 2011 it is tested on Slovak Telekom level. The recoverable amount of the cash-generating unit wasdeterminedusingcashflowsprojectionsbasedontheten-yearfinan-cial plans that have been approved by management and are also used for internalpurposes.Cashflowsbeyondtheten-yearperiodareextrapolatedusinga2%growthrate(2010:2%)andadiscountrateof6.99% (2010:7.62%).Thisgrowthratedoesnotexceedthelong-termaveragegrowth rate for the market in which the cash-generating unit operates. Fur-ther key assumptions on which management has based its determination of the recoverable amount of cash-generating unit include the development of revenue, customer acquisition and retention costs, churn rates, capital expendituresandmarketshare.Therecoverableamountofthecash-gene-ratingunitbasedonvalueinusecalculationwasdeterminedtoexceeditscarrying value. Management believes that any reasonably possible change in the key assumptions on which the cash-generating unit’s recoverable amountisbasedwouldnotcauseitscarryingamounttoexceeditsrecover-able amount.

PosAmThe recoverable amount of the cash-generating unit was determined using cashflowsprojectionsbasedonthefive-yearfinancialplansthathavebeenapproved by management and are also used for internal purposes. Cash flowsbeyondthefive-yearperiodareextrapolatedusinga2%growthrate(2010:3%)andadiscountrateof8.3%(2010:8.68%).Thisgrowthratedoesnotexceedthelong-termaveragegrowthrateforthemarketinwhichthe cash-generating unit operates. Further key assumptions on which management has based its determination of the recoverable amount of the cash-generating unit include the development of revenue from sale of hardware and software licenses, IT services and software solutions, customeracquisitionandretentioncosts,capitalexpenditureandmarketshare. The recoverable amount of the cash-generating unit based on value inusecalculationwasdeterminedtoexceeditscarryingvalue.Manage-ment believes that any reasonably possible change in the key assumptions on which the cash-generating unit’s recoverable amount is based would not causeitscarryingamounttoexceeditsrecoverableamount.

Zoznam a Zoznam MobileThe recoverable amount of the cash-generating unit was determined using cashflowsprojectionsbasedonthefive-yearfinancialplansthathavebeenapproved by management and are also used for internal purposes. Cash flowsbeyondthefive-yearperiodareextrapolatedusinga2%growthrate(2010:4%)andadiscountrateof10.92%(2010:10.35%).Thisgrowthratedoesnotexceedthelong-termaveragegrowthrateforthemarketinwhich the cash-generating unit operates. Further key assumptions on which management has based its determination of the recoverable amount of the cash-generating unit include the development of revenue from banner advertising, priority listing, e-commerce, application development and /or new products launch, customer acquisition and retention costs, capital expenditureandmarketshare.ThecarryingvalueofthecashgeneratingunitexceededitsrecoverableamountbasedonvalueinusecalculationbyEUR3,000thousandin2011andtheGroupallocatedimpairmenttogoodwillinthesameamount(Note14).Iftheimpairmenttestofgoodwillatthe cash generating unit had been conducted using discount rate that was 1%higher,theimpairmentlosstoberecognizedwouldhaveincreasedbyEUR312thousand.If,bycontrast,thediscountratehadbeen1%lower,theresultingimpairmentlosswouldhavebeenEUR550thousandlower.If the growth rate used as a basis in the impairment test had been 1% lower, theimpairmentlosswouldhavebeenEUR227thousandhigher.Inturn,impairmentlosswouldhavebeenEUR410thousandlowerifthegrowthrate had been 1% higher.


16.Principalsubsidiaryundertakings

At31December2011,theGrouphadthefollowingsubsidiaries:

thousandsofEUR

Name Registered office Activity Profit 2011 Profit 2010 Net assets 2011 Net assets 2010

PosAm, spol. s r. o.Odborárska21,83102Bratislava

IT services, applications and business solutions 2,366 2,995 7,240 6,874

Zoznam,s.r.o.Viedenskácesta3-7,85101Bratislava Internet portal 123 (326) 1,771 1,648

ZoznamMobile,s.r.o.Viedenskácesta3-7,85101Bratislava Mobile content provider 60 171 368 309

Telekom Sec, s.r.o.Kukučínova52,83103Bratislava Security services (3) (4) 3 6

UntilJuly2011theGrouphadthefollowingsubsidiary:

InstituteofNextGeneration Networks Poštová1,01008Žilina

NGN technology research and development - (30) - (281)

Financialdataforsubsidiariesarebasedontheirseparatefinancialstate-ments.

AllsubsidiariesareincorporatedintheSlovakRepublicand,exceptforPosAm, are wholly owned by Slovak Telekom. Shares in the subsidiaries are not traded on a public market.

On 11 February 2010, the Board of Directors of Slovak Telekom approved theliquidationoftheInstituteofNextGenerationNetworks.TheliquidationwascompletedinNovember2010andtheentityceasedtoexistinJuly2011.

On 29 January 2010, Slovak Telekom acquired 51% equity interest and votingrightsinPosAm(Note4).

17. Inventories

thousandsofEUR 2011 2010Cables, wires and spare parts 2,887 3,967Phones, accessories for mobile communication 7,209 5,996Other inventory including goods for resale 1,156 3,770

11,252 13,733

The Group reversed write-down of inventories in amount of EUR540thousand(2010:write-downexpenseEUR470thousand)whichisrecognizedincostofmaterialandequipment.


18.Tradeandotherreceivables

thousandsofEUR 2011 2010 Non-currentFinanceleasereceivable(Note19) 4,509 -

4,509 -

CurrentTrade receivables from third parties 102,541 105,302Tradereceivablesfromrelatedparties(Note28) 4,770 4,356Other receivables from third parties 1,778 7,218Otherreceivablesfromrelatedparties(Note28) 1,048 508Financeleasereceivable(Note19) 1,554 -

111,691 117,384

TradereceivablesarenetofanallowanceofEUR22,549thousand(2010:EUR27,284thousand).

Movements in the allowance for impaired trade receivables from third partieswereasfollows:

thousandsofEUR 2011 2010At 1 January 27,284 25,519Charge for the year 6,197 7,473Utilised (9,424) (3,574)Reversed (1,508) (2,134)At 31 December 22,549 27,284

19. Finance lease – the Group as lessor

A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed periodoftime.Afinanceleaseisaleasethattransferssubstantiallyalltherisk and rewards incidental to ownership of an asset. Title may or may not eventually be transferred.

The Group entered into a lease agreement as a lessor with the commence-ment of the lease in May 2011. Based on the agreement, the Group leases terminalequipment(PCs,routers)tothecustomer.Byanalyzingthetermsof the agreement, the Group concluded that the lease meets the criteria for classificationasafinancelease.Themaincriteriaareasfollows:

a)Ownershipoftheequipmentwillbetransferredtothelesseeattheendoftheserviceperiodforitsresidualvalue(ifany)inacasethatlesseewill request such ownership transfer at least one month before the end of the service period;

b)Non-cancelableleaseperiodisforthemajorpartoftheeconomiclifeof the assets concerned (53 months from May 2011 until September 2015);

c)Thepresentvalueoftheminimumleasepaymentsamountstoallofthefair value of the leased asset.

thousandsofEUR 2011Gross investment in the leaseNot later than 1 year 1,716Later than 1 year and not later than 5 years 4,703Later than 5 years -

Unearnedfinanceincome (356)Present value of minimum lease payments 6,063

thousandsofEUR 2011Present value of minimum lease paymentsNotlaterthan1year(Note18) 1,554Laterthan1yearandnotlaterthan5years(Note18) 4,509Later than 5 years -

6,063


20.Prepaidexpensesandotherassets

thousandsofEUR 2011 2010

Non-currentDeferred activation fees 5,067 6,238Easement 9,931 9,849Accrued revenues - 3,764Other 3,221 2,725

18,219 22,576

CurrentDeferred activation fees 3,863 4,514Accrued revenues - 8,185Other 3,234 3,784

7,097 16,483

21. Loans to Deutsche Telekom group

TheGroupprovidedthefollowingloanstoDeutscheTelekomgroup:

thousandsofEUR Úroková sadzba Splatnosť 2011 2010Deutsche Telekom AG 2.120% 1.6.2012 40,000 -Deutsche Telekom AG 2.050% 10.2.2012 60,000 -Deutsche Telekom AG 2.100% 30.3.2012 90,000 -Deutsche Telekom AG 1.395% 14.1.2011 - 20,000Deutsche Telekom AG 1.250% 3.3.2011 - 20,000Deutsche Telekom AG 1.395% 14.1.2011 - 45,000Short-termloan(Note28) 190,000 85,000

The loans granted to Deutsche Telekom AG are not secured. Deutsche Telekom AG has rating BBB+.

22. Cash and cash equivalents

thousandsofEUR 2011 2010Cash and cash equivalents 178,633 169,828

178,633 169,828

Cashatbanksearnsinterestatfloatingratesbasedondailybankdepositrates. Short-term investments are made for varying periods between one day and three months and earn interest at the respective rates.

Creditqualityofcashatbanksisasfollows:ratingA+:EUR90,589thou-sand,ratingA-:EUR8,010thousandandratingA:EUR79,179thousand.

23. Shareholders’ equity

On 1 April 1999, Slovak Telekom became a joint-stock company with 20,717,920ordinarysharesauthorized,issuedandfullypaidataparvalueofEUR33.2pershare.DeutscheTelekomAGacquired51%ofSlovakTelekomthroughaprivatizationagreementeffectivefrom4August2000,bywhichtheCompanyissued5,309,580newordinaryshareswithaparvalueofEUR33.2pershare.TheshareswereissuedatapremiumtotallingEUR386,139thousand.AllthenewlyissuedsharesweresubscribedandfullypaidbyDeutscheTelekomAG.TheprivatizationtransactionalsoinvolvedthepurchasebyDeutscheTelekomAGof7,964,445existingordinary shares from the National Property Fund of the Slovak Republic. By acquiring 51% share of Slovak Telekom, Deutsche Telekom obtained 51% of the total voting rights associated with the shares.

Asof31December2011,SlovakTelekomhadauthorizedandissued26,027,500ordinaryshares(2010:26,027,500)withaparvalueofEUR33.2pershare.Allthesharesissuedwerefullysubscribed.Duetothechange in the functional currency of the Company from the Slovak Crown to EURasat1January2009,therewasanincreaseinthesharecapitaloftheCompanyofEUR158thousand.ThestatutoryreservefundoftheCompanywas used to cover the increase in share capital.

In December 2009, the Board of Directors of Slovak Telekom approved the concept of the integration of Slovak Telekom with its 100% subsidiary T-Mobile.T-Mobileceasedtoexistwitheffectfrom1July2010andwaswound up without liquidation as of 30 June 2010 on the basis of a merger agreement concluded between Slovak Telekom and T-Mobile. On the Group’s acquisition of a controlling interest in T-Mobile at 31 December 2004, the assets and liabilities of T-Mobile were re-measured to their fair values.Theexcessofthefairvalueofthenetassetsacquiredbefore 31 December 2004 over their value reported within investments in joint venturesofEUR158,625thousandwasincludedinotherreservesandwasreleasedintoretainedearningsonannualbasis(2010,until30June: EUR7,367thousand).Atthemergerdate,thevalueofotherreservesasof1July2010ofEUR89,723thousandwastransferredintoretainedearnings.

Financial statements for the year ended 31 December 2010 were authorizedforissueonbehalfoftheBoardofDirectorsoftheGroupon 10 March 2011.

The statutory reserve fund is set up in accordance with Slovak law and is not distributable. The reserve is created from retained earnings to cover possiblefuturelosses.On28April2011,theGeneralMeetingapproveddistributionoftheprioryearprofitandresolvedtotransfer10%oftheprioryearstatutoryprofitstothereservefund,withtheremainingpartofthe2010profitbeingretained.

In2011SlovakTelekomdeclaredandpaidadividendofEUR4.99pershare(2010:EUR5.11pershare).Onthebasisofthisproposedappropria-tion,totaldividendsofEUR130,000thousand(2010: EUR132,933thousand)werepaidinJuly2011.Approvalofthe2011profitdistribution will take place at the Annual General Meeting scheduled for 30 April 2012.


24.Trade and other payables and deferred income

thousandsofEUR 2011 2010 Non-current

Contingentconsideration(earn-out) (Note4.2) - 2,378Putoption-liability(Note4.2) 11,692 11,282Deferred income 6,200 8,128Other 64 167

17,956 21,955 Current Trade payables to third parties 97,651 107,340

Tradepayablestorelatedparties(Note28) 11,470 4,741Amounts due to employees 21,317 19,850

Contingentconsideration(earn-out)(Note4.2) 2,438 -Deferred income 37,046 40,231Other payables to third parties 13,007 14,164Otherpayablestorelatedparties(Note28) 56 -

182,985 186,326

Amountsduetoemployeesincludesocialfundliabilities:

thousandsofEUR 2011 2010At 1 January 140 216Additions from business combination - 24Additions 1,786 1,776Utilisation (1,705) (1,876)At 31 December 221 140

25. Finance lease – the Group as lessee

TheGroupleasesvehiclesanddieselaggregateunderfinanceleases.NetbookvalueofvehiclesisEUR210thousand(2010:EUR364thousand)andnetbookvalueoftheaggregateisEUR16thousand(2010: EUR24thousand)asat31December2011.Theaverageleasetermofvehicles and diesel aggregate is 3.5 and 4 years respectively. The Group has options to purchase the equipment for a nominal amount at the end of theleaseterms.TheGroup‘sobligationsunderfinanceleasesaresecuredby the lessor’s title to the leased assets.

Interestratesunderlyingallobligationsunderfinanceleasesarefixedatrespective contract dates 1.1% per annum.

thousandsofEUR 2011 2010 Minimum lease paymentsNot later than one year 103 134Later than one year and not later than three years 59 162Laterthanthreeandnotlaterthanfiveyears 5 5

167 301

thousandsofEUR 2011 2010Current 103 134Non-current 64 167

167 301


26.Provisions

thousandsofEUR

Legal and regulatory claims

Asset retirement obligation

Loyalty program

Termination benefits

Employee benefits Other Total

At 1 January 2011 1,757 8,436 2,449 3,960 2,912 2,301 21,815Arising during the year 979 134 181 6,964 1,023 3,543 12,824Reversals (483) (629) (1,275) - (3,478) (257) (6,122)Utilised (140) (140) (1,330) (8,629) (87) (3,148) (13,474)Interest impact - 182 - - 367 10 559At 31 December 2011 2,113 7,983 25 2,295 737 2,449 15,602

Non-current - 7,983 - - 737 1,271 9,991Current 2,113 - 25 2,295 - 1,178 5,611

2,113 7,983 25 2,295 737 2,449 15,602

Legal and regulatory claims The provision includes amounts in respect of legal and regulatory claims brought against the Group. It is the opinion of the Group’s management that the outcome of these legal and regulatory claims will not result in any significantlossbeyondtheamountsprovidedat31December2011.

Asset retirement obligationThe Group is subject to obligations for dismantlement, removal and restora-tionofassetsassociatedwithitscellsiteoperatingleases(Note2.18).Cell site lease agreements may contain clauses requiring restoration of the leased site at the end of the lease term, creating an asset retirement obligation.

Loyalty programFrom August 2011, the Group discontinued provision of the loyalty points to its customers. All points granted by August 2011, but not redeemed by the customersexpiredon31December2011.Provisionforthepoints,whichwerenotutilizedbycustomers,wasreleased.RemainingbalanceoftheprovisionofEUR25thousandwasreleasedinJanuary2012.

Termination benefitsThe restructuring of the Group’s operations resulted in headcount reduc-tionof733employeesin2011.TheGroupexpectsafurtherheadcountreductionof169employeesin2012asaresultofanongoingrestructuringprogram.Adetailedformalplanthatspecifiesthenumberofstaffinvolvedandtheirlocationsandfunctionswasdefinedandauthorisedbymanage-ment and announced to the trade unions. The amount of compensation to be paid for terminating employment was calculated by reference to the collectiveagreement.Theterminationpaymentsareexpectedtobepaidwithintwelvemonthsofthestatementoffinancialpositiondateandarerecognizedinfullinthecurrentperiod.

Retirement and jubilee benefitsTheGroupprovidesbenefitplansforallitsemployees.Provisionsarecreatedforbenefitspayableinrespectofretirementandjubileebenefits.One-offretirementbenefitsaredependentonemployeesfulfillingtherequiredconditionstoenterretirementandjubileebenefitsaredependentonthenumberofyearsofservicewiththeGroup.Thebenefitentitlementsare determined from the respective employee’s monthly remuneration or as adefinedparticularamount.

thousandsofEUR

Retirement benefits Jubilee Total

Present value of the defined benefit obligationAt 1 January 2011 8,528 275 8,803Interest cost 358 9 367Current service cost 552 19 571

Past service costs due to plan amendments 2,530 - 2,530 Benefitspaid (66) (20) (86)Actuarial gains (3,299) (26) (3,325)At 31 December 2011 8,603 257 8,860

Pastservicecostnotrecognizedinthestatementoffinancialposition (7,970) - (7,970)Curtailment gain (105) (48) (153)

Liability recognized in the statement of financial position at 31 December 2011 528 209 737

PastservicecostsinamountofEUR2,530thousandrelatetoamendedtermsofretirementbenefit.Thecurtailmentgaininamountof EUR153thousandresultedfromareductioninthenumberofparticipantscoveredbytheretirementandjubileebenefitplans.

Principalactuarialassumptions,exceptforinterestcosts,usedindetermin-ingthedefinedbenefitobligationincludethediscountrateof5.210%.Interest costs include the discount rate as at the beginning of the account-ingperiodof3.238%.Averageretirementageis62years.Theexpectedgrowth of nominal wages is 2.900%.


27. Commitments

The Group’s non-current assets purchase and miscellaneous purchase commitmentswereasfollows:


Commitments for the acquisition of intangible assets 14,603 1,234

Commitments for the acquisition of property and equipment 8,690 9,909Commitments for the purchase of services and inventory 93,142 40,919

116,435 52,062

The Group has commitments for the acquisition of tangible and intangible fixedassetsmainlywithDeutscheTelekomAGofEUR6,150thousandrelating to the project NG CRM.

The Group has other purchase commitments relating primarily to outsourc-ing of operation and maintenance of technologies with Ericsson Slovakia of EUR18,400thousand,provisionofsatellitedigitalTVwithMagyarTelekomofEUR15,261thousand,purchaseofdevicesfromAppleofEUR8,985thousandandLeadtekofEUR4,148thousand,outsourcingofrealestatemanagementwithBKServiceInternationalofEUR7,441thousandandmanagementofdatacentreswithCOFELYofEUR5,120thousand.

Thefutureminimumoperatingleasepaymentswereasfollows:

thousandsofEUR 2011 2010Operating lease payments due within one year 6,114 12,227

Operating lease payments due between one and fiveyears 6,927 14,771Operatingleasepaymentsdueafterfiveyears 111 2,145

13,152 29,143

The Group has commitments under operating leases of EUR8,732thousandfromrentalofadministrationpremisesandof EUR4,420thousandforshopsandcarfleetrental.

28.Relatedpartytransactions

Receivables Payables Sales and income Purchases CommitmentsthousandsofEUR 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010

DT AG 191,639 85,861 8,953 2,348 5,459 2,734 10,328 3,657 7,480 -Other entities in DT AG group 4,177 4,003 2,573 2,393 11,741 11,665 11,744 12,870 - -Other shareholders of the Group 2 - - - 51 - 1 - - -

195,818 89,864 11,526 4,741 17,251 14,399 22,073 16,527 7,480 -

The Group conducts business with its ultimate parent, Deutsche Telekom AG and its subsidiaries, associates and joint ventures. Business transac-tionsrelatemainlytotelephonecallsandothertrafficintherelatedparties’networks. Other transactions include data services, management, consul-tancy,otherservicesandpurchasesoffixedassets.TheGrouppurchasedfixedassetsinamountofEUR1,852thousand(2010:EUR940thousand).


The Group granted Deutsche Telekom AG a short-term loan of EUR190,000thousand(2010:EUR85,000thousand).InterestrelatedtotheloanamountedtoEUR2,777thousand(2010:EUR1,458thousand)(Notes9,21).

TheSlovakGovernmenthassignificantinfluenceoverthefinancialand operating policy decisions of the Group through 49% of the shares of Slovak Telekom. The shares are owned by Slovak Republic through the MinistryoftheEconomyoftheSlovakRepublic(34%)andbytheNationalPropertyFundoftheSlovakRepublic(15%).ThereforetheSlovakGovern-ment and the companies controlled or jointly-controlled by the Slovak GovernmentareclassifiedasrelatedpartiesoftheGroup(“SlovakGovern-mentrelatedentities”).

In2011theGrouppaidtotheTelecommunicationsOfficeoftheSlovakRepublicfeeofEUR47,767thousandfortheprolongationofthelicensefortheprovisionofmobileservicesunderthefrequenciesof900MHz,1800MHzand450MHz(Notes1,14).TheGroupalsoincurredexpensesofEUR7,353thousand(2010:EUR7,000thousand)withrespecttootherfrequency and telecommunication equipment related fees to the Telecom-municationsOffice(Note7).

During 2010 the Group has entered into a contract for the period of 5 years with the Slovak Government related entity on establishment and delivery ofcommunicationsystem,leaseofterminalequipment(Note19),deliveryof internet connectivity and other telecommunications services. The total valueofthecontractsisapproximatelyEUR23,859thousand,ofwhichrevenueofEUR12,426thousandwasrecognizedduring2011.

During 2001 the Group has signed a master agreement with the Slovak Government related entity on providing services of communications infra-structure. The contract amount depends on actual services provided during thefinancialperiod.In2011,theGrouprecognizedrevenuerelatedtothiscontractofEUR8,673thousand(2010:EUR9,073thousand).

During 2011 the Group purchased electricity and electricity distribution ser-vicesfromtheSlovakGovernmentrelatedentitiesforEUR8,537thousand(2010:EUR13,684thousand).

During 2011 the Group purchased postal and cash collection services for EUR5,535thousand(2010:EUR6,899thousand)andleasedspaceforEUR2,043thousand(2010:EUR2,193thousand)fromtheSlovakGovern-ment related entity.

The Group routinely provides telecommunication and other electronic communication services to the Slovak Government and its related entities as part of its normal business activities. The Group also purchases services and goods from the Slovak Government related entities in the normal course of business.

Deutsche Telekom as the parent company controlling Slovak Telekom is a related party to the Federal Republic of Germany. Slovak Telekom had no individuallysignificanttransactionswiththeFederalRepublicofGermanyor entities that it controls, jointly controls or where Federal Republic of Germanycanexercisesignificantinfluenceineither2010or2011.

Compensation of key management personnel Thekeymanagementpersonnel,20innumber(2010:20)includemem-bersoftheExecutiveManagementBoard,BoardofDirectorsandSupervi-sory Board.

thousandsofEUR 2011 2010Shorttermemployeebenefits 2,495 2,008Cash based incentive program payments 270 204

2,765 2,212

thousandsofEUR 2011 2010ExecutiveManagementBoard 2,666 2,138Board of Directors 55 39Supervisory Board 44 35

2,765 2,212

29. Contingencies

Legal and regulatory casesOn8April2009,theEuropeanCommission(“Commission”)openedpro-ceedings against the Company. The Commission is investigating whether the Company may have engaged in conduct obstructing competition in the Slovak Republic, in violation of Article 102 of the Treaty on the Functioning oftheEuropeanUnion(“TFEU”)inparticularwhethertheCompanyhasengagedinrefusaltosupplyand/orinmarginsqueezeconducttothedetri-ment of its competitors on the broadband market.

The investigation has proceeded through a series of questionnaires, to which the Company responded in a timely and professional manner. The Company has also adopted a pro-active approach to the investigation by submittingfour“issuespapers”,substantiatingwhytheCommissionshouldnot intervene in the present case. These papers were accompanied by reportsfromtwoindependentexperts,addingtotheircredibility.

On28January2011,theCompanymetwiththeCommissiontodiscussthecurrent status of the Commission’s investigation. On 3 February 2011 and 5 July 2011 Deutsche Telekom met with the Commission to discuss parental liability of Deutsche Telekom. The Commission now has to decide whether to issue a Statement of Objections setting out its preliminary view. If proven, the allegations against the Company could lead to the Commis-sionfindingthattheCompanywasininfringementofArticle102TFEUandimposingafineontheCompany.Inproceedingsofthiskind,thefinalamountofthefineshallnot,inanyevent,exceed10%ofthetotalturnoverin the preceding business year of the undertaking. However, in the event thattheCommissionisabletoestablishso-called“parentalliability”duetothe“influence”thatDeutscheTelekomallegedlyexertsontheCompany,this could be understood as the turnover of the group and could attain 10% of overall turnover. Company’s legal position is that the likelihood of theCommissionissuingarulingofinfringementandimposingafineispossible rather than probable and a provision has not been made in these financialstatements.Should,however,theCommissiondecidetoadoptaninfringement decision, it is not possible at this preliminary stage of the case topredicttheleveloffinetowhichCompanywouldbeexposed.

In 1999, a lawsuit was brought against Company for compensation of damagesandlossofprofitallegedlycausedbyswitch-offoftheRadioCDInternational(“CDI”)broadcastingin1996.RadioCDIwasaprogramofSlo-vak Radio directed to the territory of Austria and broadcasted by Company. In1996,thebroadcastingoftheRadioCDIwasswitchedoff,basedonthe


request of the Council for Radio and Television Broadcasting stating that RadioCDIbroadcastingviolatedthelaw.In2011,thefirstinstancecourtdecidedthatCompanyisobligedtopaytheplaintifftheamountofEUR32,179thousandoftheprincipaland17.6%lateinterestsince4Septem-ber1996untilfullypaid.Companyfiledanappealagainstthatjudgmentasitisoftheopinionthatthefirstinstancecourtdidnotdealwithanumberof proofs and assertions provided by Company. Additionally, Company believes that serious errors were committed in the matter at issue on the partofthefirstinstancecourt,whicherrorsprovetheincorrectnessofthejudgementandshouldbesufficientenoughtoconsiderthatwhilstthelossin this lawsuit is possible, it is not likely.

In 2007 the Regional Court in Bratislava overturned the second stage deci-sionoftheAnti-MonopolyOffice(“AMO”),whichhadimposedonCompanyapenaltyofEUR29,377thousandforabuseofdominantpositionbyfailingtoprovideaccesslocalloopsservice(asanessentialfacility)toCompany’scompetitors within the period of August 2002 to August 2005. Subse-quently, AMO initiated a new proceeding on this same issue and imposed onCompanythesamepenaltyagain.Companyfiledanadministrativecomplaint against this decision. Subsequently, in 2010, the Regional Court cancelled the challenged AMO decisions in full, however AMO appealed againstthisjudgment.In2011,theSupremeCourtconfirmedthejudgmentof the Regional Court, thus the case was returned back to AMO for further proceedings and correction of errors. On 3 February 2012, Slovak Telekom was delivered a decision of the AMO on closing the proceedings. The deci-sionisfinal.TheAMOadmittedthatthereisnosufficientevidencetoprovethe abuse of dominant position by failing to provide access to local loops (asanessentialfacility)toCompany’scompetitorsandthereisnorealexpectationthatAMOwouldbeabletogathersuchevidenceinthefuture.

In2009,AMOimposedonCompanyapenaltyofEUR17,453thousandfor abusing its dominant position and violating competition law by price squeezeandtyingpracticesonseveralrelevantmarkets(voice,dataandnetworkaccessservices).CompanyfiledanadministrativecomplainttotheRegional Court in Bratislava in 2009. In January 2012 the Regional Court cancelled the challenged AMO decisions in full. The judgment is appeal-able. As management believes that it is possible rather than probable that this case will result in an obligation to pay the penalty, a provision has not beenmadeinthesefinancialstatements.

In 2007 the Regional Court in Bratislava overturned the second stage decisionofAMO,whichhadimposedonCompanyapenaltyofEUR2,656thousandforabusingitsdominantpositionintenderingforcomplextelecommunication project. Subsequently, AMO initiated a new proceed-ingonthissameissueandimposedonCompanythepenaltyofEUR2,423thousandforabusingitsdominantpositionintenderingforcomplextelecommunicationprojectbymarginsqueezeondataVPNservices.Com-panyfiledanadministrativecomplainttotheRegionalCourtinBratislavain 2009, based on which, in 2010, the Regional Court decided in favour of Company and cancelled AMO decisions in full. AMO appealed this judge-ment,however,in2011theSupremeCourtconfirmedthefirstinstancejudgment and returned the case back to AMO for further proceedings and correction of errors. As management believes that it is possible rather than probable that this case will result in an obligation to pay a penalty, a provi-sionhasnotbeenmadeinthesefinancialstatements.

The Company is involved in legal and regulatory proceedings in the normal courseofbusiness.ManagementisconfidentthattheCompanywillsuffernomateriallossasaresultofsuchproceedingsinexcessoftheprovisionsalreadyrecognizedinthefinancialstatements(Note26).

Tax legislationManyareasofSlovaktaxlaw(suchastransfer-pricingregulations)havenotbeensufficientlytestedinpractice,sothereissomeuncertaintyastohowthetaxauthoritieswouldapplythem.Theextentofthisuncertaintycannotbequantified.Itwillbereducedonlyiflegalprecedentsorofficialinterpre-tations are available. The Group’s management is not aware of any circum-stancesthatmaygiverisetoafuturematerialexpenseinthisrespect.


Cashandcashequivalents,derivativefinancialinstrumentsheldfortrading,trade receivables, trade payables and loans have short maturities and their carryingamountsapproximatetheirfairvaluesatthereportingdate.

Termdepositrelatestobankdepositwithmaturity6months.

The held-to-maturity investments consist of state bonds, state promissory note and a bank bond with remaining maturity up to 1 year. The Group has the ability and intends to hold these investments till maturity. The fair value oftheheld-to-maturityinvestmentsamountedtoEUR82,757thousandat31December2011(2010:EUR82,454thousand).Thisvaluewasestab-lished based on market values provided by banks who act as depositors of the securities.

If the interest rates of the held-to-maturity investments were 15 basis points higher/20 basis points lower and all other variables were held constant, the Group’sprofitfortheyearended31December2011andequityat 31December2011wouldincrease/decreasebyEUR127thousand/ EUR170thousand(2010:EUR64thousand/EUR73thousand).

Forward foreign exchange contractsAs of 31 December 2011 the Group was not a party to any foreign exchangeforwardcontract.

Asof31December2010theGroupwasapartytofiveforeignexchangeforwardcontractswithmaturityofonetofivemonthstohedgeanticipatedfutureforeigncurrencyexpenditureinUSD.Whilethesecontractsprovidedeffective economic hedges under the Group’s risk management policies, theydidnotqualifyforhedgeaccountingunderthespecificrulesofIAS39andwere,therefore,classifiedasheldfortradinguponinitialrecognition.

The net gain from the change in the fair value of derivative instruments was recognizedintheincomestatementintheamountofEUR9thousand,netoftaxofEUR2thousandfortheyearended31December2010.

31. Audit fees

In 2011 the Group changed the audit company to PricewaterhouseCoop-ersSlovensko(2010:Ernst&YoungSlovakia).In2011theGroupobtainedstatutoryauditservicesinamountofEUR169thousand(2010: EUR424thousand),otherassuranceservicesinamountofEUR120thou-sand(2010:EUR189thousand)andotherservicesinamountof EUR24thousand(2010:EUR43thousand).

32. Events after the reporting period

TheGroupreportedcontingentliabilityinamountofEUR29,377thousandas at 31 December 2011as disclosed in Note 29. Further development of the case during the 2012 resulted in closing of the proceedings against the Group.

There were no other events, which have occurred subsequent to the year-end,whichwouldhaveamaterialimpactonthefinancialstatementsat 31 December 2011.

Carrying amount Fair valuethousandsofEUR 2011 2010 2011 2010

Financial assetsNon-current

Held-to-maturity investments - 39,266 - 39,344Financeleasereceivable(Note19) 4,509 - 4,509 -

CurrentCash and cash equivalents 178,633 169,828 178,633 169,828Held-to-maturity investments 82,724 43,079 82,757 43,110Term deposit over 3 months - 60,000 - 60,000Trade receivables 107,312 109,658 107,312 109,658Financeleasereceivable(Note19) 1,554 - 1,554 -Loans(Note21) 190,000 85,000 190,000 85,000Derivativefinancialinstrumentsheldfortrading - 23 - 23

Financial liabilitiesNon-current

Contingentconsideration(earn-out)(Note24) - 2,378 - 2,378Putoption–liability(Note24) 11,692 11,282 11,692 11,282

CurrentTrade payables 109,121 112,081 109,121 112,081Contingentconsideration(earn-out)(Note24) 2,438 - 2,438 -

30. Financial assets and liabilities

Fair valuesBelowisacomparisonofthecarryingamountsandfairvaluesofmaincategoriesoffinancialinstrumentscarriedinthefinancialstatements:


Independent auditor’s report



accordancewithInternationalFinancialReportingStandards(IFRS) and Auditor’s Reportfor the year ended 31 December 2011

Separatefinancialstatements

Contents

99 Income statement

100 Statement of comprehensive income

101 Statementoffinancialposition

102 Statement of changes in equity

103 Statementofcashflows

104 Notestothefinancialstatements

132 Independent auditor’s report

Financial statements Separate financial statements |98

Income statement for the year ended 31 December

thousandsofEUR Notes 2011 2010restated

Revenue 5 867,742 669,468

Staff costs 6 (134,389) (120,033)Material and equipment (76,643) (50,816)Depreciation,amortizationandimpairmentlosses 13,14 (232,111) (178,891)Interconnection and other fees to operators (107,888) (84,341)Other operating income 8 14,187 13,733Other operating costs 7 (191,994) (158,044)

Operating profit 138,904 91,076

Financial income 9 7,826 6,968Financialexpense 10 (3,609) (1,402)

Profit before tax 143,121 96,642

Taxation 11 (29,188) (18,590)


Thefinancialstatementsonpages99to131wereauthorisedforissueonbehalfoftheBoardofDirectorsoftheCompanyon15March2012by:

Personresponsibleforaccounting:

Preparerofthefinancialstatements:

............................................................ ............................................................ Ing. Miroslav Majoroš Dr. Robert Hauber Chairman of the Board of Directors Member of the Board of Directors andChiefExecutiveOfficer andChiefFinancialOfficer

............................................................ Ing. Mária Rokusová Senior Manager of Shared Service Center

............................................................ Ing. Vladimíra Richterová Manager of Reporting and Accounting Policies

Financial statements Separate financial statements | 99

Statement of comprehensive incomefor the year ended 31 December



Other comprehensive incomeActuarialgains/(losses)ondefinedbenefitplans 25 3,299 (616)Deferredtax 11 (627) 117Other comprehensive income for the year, net of tax 2,672 (499)

Total comprehensive income for the year, net of tax 116,605 77,553


Statementoffinancialposition


ASSETSNon-current assetsProperty and equipment 13 1,002,447 1,071,849Intangible assets 14 384,457 377,341Investments in subsidiaries 16 16,731 19,231Held-to-maturity investments 29 - 39,266Trade and other receivables 18 4,509 -Prepaidexpensesandotherassets 20 17,847 22,417

1,425,991 1,530,104Current assetsInventories 17 11,192 13,645Trade and other receivables 18 104,478 113,284Prepaidexpensesandotherassets 20 6,533 16,018Held-to-maturity investments 29 82,724 43,079Loans 21 190,000 85,000Term deposit over 3 months 29 - 60,000Currentincometaxreceivable - 3,584Cash and cash equivalents 22 172,414 163,298

567,341 497,908Assets held for sale 12 - 1,134

567,341 499,042

TOTAL ASSETS 1,993,332 2,029,146

EQUITY AND LIABILITIESShareholders’ equityIssued capital 23 864,113 864,113Share premium 23 386,139 386,139Statutory reserve fund 159,240 130,629Actuarialgains/(losses)ondefinedbenefitplans 2,380 (292)Retainedearningsandprofitfortheyear 232,334 286,481

1,644,206 1,667,070Non-current liabilitiesProvisions 25 9,912 11,682Deferredtax 11 137,239 148,634Other payables and deferred income 24 5,943 10,401

153,094 170,717Current liabilitiesTrade and other payables and deferred income 24 174,677 181,592Provisions 25 5,414 9,767Currentincometaxliability 15,941 -

196,032 191,359

Total liabilities 349,126 362,076

TOTAL EQUITY AND LIABILITIES 1,993,332 2,029,146

as at 31 December


Statement of changes in equityfor the year ended 31 December

thousandsofEUR Notes Issued capital

Share premium

Statutory reserve fund

Actuarial (losses)/ gains on

defined benefit plans

Retained earnings restated

Total equityrestated

Year ended 31 December 2010As at 1 January 2010 864,113 386,139 91,071 207 147,910 1,489,440Merger impacta) 4 - 24,787 208,223 233,010Profitfortheyear - - - - 78,052 78,052Other comprehensive income - - - (499) - (499)Total comprehensive income - - - (499) 78,052 77,553Allocation to funds 23 - - 14,771 - (14,771) -Dividends 23 - - - - (132,933) (132,933)At 31 December 2010 864,113 386,139 130,629 (292) 286,481 1,667,070

Year ended 31 December 2011As at 1 January 2011 864,113 386,139 130,629 (292) 286,481 1,667,070Profitfortheyear - - - - 113,933 113,933Other comprehensive income - - - 2,672 - 2,672Total comprehensive income - - - 2,672 113,933 116,605Allocation to funds 23 - - 28,611 - (28,611) -Other changes in equity - - - - (9,469) (9,469)Dividends 23 - - - - (130,000) (130,000)At 31 December 2011 864,113 386,139 159,240 2,380 232,334 1,644,206

a)AsfurtherdescribedinNote1andNote4,effective1July2010SlovakTelekom,a.s.(“SlovakTelekom”)andT-MobileSlovensko,a.s.(“T-Mobile”)havebeen legally merged. Slovak Telekom became a legal successor of T-Mobile and consequently has taken over their assets and liabilities. Slovak Telekom has previously acquired control over T-Mobile in a transaction with a third party investor in 2004 in an acquisition of 49% interest that has changed the status of T-Mobile from a joint-venture to a subsidiary. Slovak Telekom used, for the purposes of accounting for the effects of the 2010 legal merger, retrospectivepredecessorvaluesdeterminedduringtheaccountingforthebusinesscombinationusedinits2004IFRSconsolidatedfinancialstate-ments(retrospectivepredecessorvaluemethod).Theeffectofusingsuchvalues(afteramortizationwhereappropriate)isshownbelow.ApplyingtheretrospectivepredecessorvaluesforthepurposeoflegalmergerledtorecognitionofgoodwillintheseparatefinancialstatementsduetotheeffectofsuchvaluesontheshareofassetsandliabilitiesofT-Mobileattributabletothe51%ownershipinT-MobilebySlovakTelekomexistingbeforethebuy-out of the joint venture partners in 2004.

RetainedearningsofSlovakTelekomwerecreditedbytheamountofEUR208,223thousandconsistingofthefollowingitems:

thousandsofEUR

Share capital of T-Mobile 123,993

RetainedearningsandcurrentyearprofitofT-MobileasofthemergerdateperT-Mobilestandalonefinancialstatements (withassetsandliabilitiesvaluedathistoricalcosttoT-Mobile) 208,062Increaseinnon-currentassetsduetouseofretrospectivepredecessorvalues,netofdeferredtax 170,446Goodwillarisingfromtheuseofretrospectivepredecessorvalues(seeabove) 73,313RemovalofaprovisionforUniversalserviceobligation,netofdeferredtax(Note4) 11,355less:FinancialinvestmentofSlovakTelekominT-Mobile (378,946)Net effect of the merger on retained earnings of Slovak Telekom 208,223

Statutory reserve fund of Slovak Telekom was increased by the balance of the statutory reserve fund of T-Mobile as of the merger effective date.


Statementofcashflowsfor the year ended 31 December



Adjustmentsfor:Depreciation,amortizationandimpairmentlosses 13,14 232,111 178,891Interest income, net (6,683) (3,431)Incometaxexpense 11 29,188 18,590Gain on disposal of property and equipment 8 (996) (361)Impairment of investments in subsidiaries 16 2,500 -Dividend income from group companies 9,27 (1,020) (2,658)Other non-cash items (4,073) (2,417)Movements in provisions (3,378) 2,003Changesinworkingcapital:

Change in trade and other receivables 11,382 227Change in inventories 4,366 (2,736)Change in trade and other payables (8,384) 6,613

Cash flows from operations 368,946 272,773Incometaxespaid (19,463) (24,711)

Net cash flows from operating activities 349,483 248,062

Investing activitiesPurchase of intangible assets, property and equipment (173,200) (105,415)Proceeds from disposal of intangible assets, property and equipment 1,845 1,423Acquisition of interest in subsidiary - (10,733)Dividends received 27 1,020 103,362Acquisition of held-to-maturity investments (39,273) (78,706)Proceeds from disposal of held-to-maturity investments 39,559 56,211Disbursement of intragroup loan (170,000) (110,000)Repayment of borrowings 65,059 105,045Termination/(acquisition)ofshort-termbankdeposit 60,000 (60,000)Interest received 4,624 2,462Cash and cash equivalents transferred on merger - 69,243

Net cash used in investing activities (210,366) (27,108)

Financing activitiesDividends paid 23 (130,000) (132,933)Other charges paid (1) (35)

Net cash used in financing activities (130,001) (132,968)

Net increase in cash and cash equivalents 9,116 87,986Cash and cash equivalents at 1 January 22 163,298 75,312

Cash and cash equivalents at 31 December 22 172,414 163,298


NotestothefinancialstatementsIndextothenotestothefinancialstatements

1. General information 105 2. Accountingpolicies 106 4. SlovakTelekomandT-MobileSlovensko(merger) 118 5. Revenue 119 7. Other operating costs 119 8. Otheroperatingincome 119 9. Financial income 119 10. Financialexpense 119 11. Taxation 119 12. Assets held for sale 120 13. Property and equipment 121 14. Intangible assets 122 15. Impairment of goodwill 123 16. Investmentsinsubsidiaries 124 17. Inventories 124 18. Tradeandotherreceivables 125 19. Finance lease – the Company as lessor 125 20. Prepaidexpensesandotherassets 126 21. Loans 126 22. Cashandcashequivalents 126 23. Shareholders’equity 126 24. Trade and other payables and deferred income 127 25. Provisions 127 26. Commitments 128 27. Related party transactions 129 28. Contingencies 130 29. Financial assets and liabilities 131 30. Audit fees 131 31. Events after the reporting period 131


1. General information

SlovakTelekom,a.s.(“theCompany”or“SlovakTelekom”)isajoint-stockcompany incorporated on 1 April 1999 in the Slovak Republic. The Com-pany’sregisteredofficeislocatedatKaradžičova10,82513Bratislava.Thebusinessregistrationnumber(IČO)oftheCompanyis35763469andthetaxidentificationnumber(DIČ)is2020273893.On4August2000,DeutscheTelekomAG(“DeutscheTelekom”or“DTAG”)gainedcontrolof the Company through the acquisition of 51% of the shares of Slovak Telekom.ThetransactioninvolvedthepurchaseofexistingsharesfromtheNational Property Fund of the Slovak Republic and the issue of new shares. The Slovak Republic retains 34% of the shares of the Company through the Ministry of the Economy of the Slovak Republic and the National Property Fund of the Slovak Republic retains 15% of the shares of the Company.

In December 2009, the Board of Directors of the Company approved the concept of the integration of Slovak Telekom, a. s. with its 100% subsidiary T-MobileSlovensko,a.s.(“T-Mobile”)inlinewiththestructuralandorgani-zationalchangeswithintheDeutscheTelekomGroup.On27April2010the integration of the companies was approved by the General Meeting of the Company. As a result of this decision, T-Mobile was wound up without liquidation by means of an up-stream merger and all its assets, rights and obligations, including labour rights and duties, were transferred to Slovak Telekom as the legal successor as of 1 July 2010. Since October 2011 the Company operates on the market under one common brand name Telekom instead of two brand names T-Com and T-Mobile.

TheCompanyisaleadingsupplieroffixed-lineandmobiletelecommunica-tionsservicesintheSlovakRepublicandownsandoperatessignificanttelecommunications facilities therein. The Company provides national and international telephony services, broadband internet services, IPTV (MagioTV),satelliteTV(MagioSAT),andawiderangeofothertelecom-munications services including data networks, value added services and leased lines. It also provides residential and business customers with products ranging from standard telephones to computer communica-tions networks. The Company provides mobile telephony services in the 900MHzand1800MHzfrequencybandsundertheGlobalSystemforMobileCommunicationsstandard(“GSM”)andinthe2100MHzfrequencybandundertheUniversalMobileTelecommunicationsSystemstandard(“UMTS”),hereinafterreferredtoas“mobileservices”.TheCompanyusesthe450MHzfrequencybandtoprovidewirelessbroadbandinternetac-cess under the Flash-OFDM standard and provides Managed Data Network Services.TheCompanyalsolaunchedFixedWirelessAccess(FWA),utiliz-ingthe26GHz/28GHzfrequencybands.

ThegenerallicensegrantedbytheTelecommunicationsOfficeoftheSlovakRepublicfortheprovisionofmobileservicesunderthe900MHz,1800MHzand450MHzfrequencybandsisvalidupto31August2021.TheUMTSlicenseisvalidupto31August2026.The26GHz/28GHzfrequencylicensesweregrantedbytheTelecommunicationsOfficeoftheSlovak Republic and are valid up to December 2017.

Members of the Statutory Boards as at 31 December 2011

Board of DirectorsChair: Ing.MiroslavMajorošVice-chair: Ing.MartinMácMember: Dr.RobertHauberMember: AlbertPottMember: Dr.RalphRentschlerMember: Ing.MilošŠujanskýM.B.A.Member: Ing.RóbertSándor

Supervisory BoardChair: Dr.Hans-PeterSchultzVice-chair: Ing.KatarínaLeškováMember: Ing.JúliusMaličkýMember: MilanBrlejMember: Ing.JánVozárMember: Ing.JánHláčikMember: Ing.MiroslavGalambošMember: CorneliaElisabethSonntagMember: TanjaWehrhahn

In2011anumberofchangeswereenteredintheCommercialRegister:Mr.SzabolcsGáborjáni-SzabólefttheBoardofDirectorsinApril2011andwas replaced by Mr. Robert Hauber. In addition, the Chair Mr. Andreas Hesse left the Supervisory Board in November 2011 and was replaced by Mr.Hans-PeterSchultz,whowasamemberofSupervisoryBoarduntilthereplacement.ThememberpositionofMr.Hans-PeterSchultzwasreplacedby Ms. Tanja Wehrhahn.

DeutscheTelekomAG,withitsregisteredofficeatFriedrichEbertAllee140, Bonn, Germany, is the parent of the group of which the Company is amemberandforwhichthegroupfinancialstatementsaredrawnup.Theparent’sconsolidatedfinancialstatementsareavailableattheirregisteredofficeorattheDistrictCourtofBonnHRB6794,Germany.


2. Accounting policies

Theprincipalaccountingpoliciesadoptedinthepreparationofthesefinan-cial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparationThefinancialstatementshavebeenpreparedonahistoricalcostbasis,exceptwheredisclosedotherwise.

TheCompany’sfunctionalcurrencyistheEuro(“EUR”),thefinancialstate-ments are presented in Euros and all values are rounded to the nearest thousands,exceptwhenotherwiseindicated.

Thefinancialstatementswerepreparedusingthegoingconcernassump-tion that the Company will continue its operations for the foreseeable future.

Statement of complianceThesefinancialstatementsaretheordinaryseparatefinancialstatementsof the Company and have been prepared in accordance with International FinancialReportingStandardsasadoptedbytheEuropeanUnion(“IFRS”).Thesefinancialstatementsshouldbereadtogetherwiththeconsolidatedfinancialstatementsinordertoobtainfullinformationonthefinancialposi-tion,resultsofoperationsandchangesinfinancialpositionoftheCompanyand its subsidiaries.

Theconsolidatedfinancialstatementsfortheyearended31December2011 have been prepared in compliance with International Financial ReportingStandardsasadoptedbytheEuropeanUnion.TheconsolidatedfinancialstatementsareavailableattheCompany‘sregisteredofficeoratthe Register Court administering the Commercial Register of District Court Bratislava I, Slovak Republic.

2.2 Property and equipmentPropertyandequipment,exceptforland,iscarriedatcost,excludingthecosts of day-to-day servicing, less accumulated depreciation and accumu-lated impairment in value. The cost of property and equipment acquired in a business combination is their fair value as at the date of acquisition. The initial estimate of the costs of dismantling and removing the item of property and equipment and restoring the site on which it is located is alsoincludedinthecostsiftheobligationincurredcanberecognizedasaprovision according to IAS 37.

Cost includes all costs directly attributable to bringing the asset into working condition for its use as intended by the management. In the case ofthenetwork,thiscomprisesallexpenditures,includinginternalcostsdirectly attributable to network construction, and includes contractors’ fees, materialsanddirectlabour.Noborrowingcostswerecapitalizedduring2010 or 2011. The cost of subsequent enhancement is included in the asset’scarryingamountorrecognizedasaseparateasset,asappropriate,onlywhenitisprobablethatfutureeconomicbenefitsassociatedwiththeitemwillflowtotheCompanyandthecostoftheitemcanbemeasuredreli-ably. Maintenance, repairs and minor renewals are charged to the income statement as incurred.

Anitemofpropertyandequipmentisderecognizedupondisposalorwhennofutureeconomicbenefitsareexpectedfromitsuseordisposal.Anygainor loss arising on derecognition of the asset (calculated as the difference betweenthenetdisposalproceedsandthecarryingamountoftheasset)is

includedintheincomestatementintheperiodtheassetisderecognized.Net disposal proceeds consist of both cash consideration and the fair value of non-cash consideration received.

Depreciation is calculated on a straight-line basis from the time the assets are available for use, so as to write down their cost to their estimated residualvaluesovertheirusefullives.Thedepreciationchargeisidentifiedseparatelyforeachsignificantpartofanitemofpropertyandequipment.

The useful lives assigned to the various categories of property and equip-mentare:

Buildings and masts 50 yearsOther structures 5 to 15 yearsDuct, cable and other outside plant 8to50yearsTelephoneexchangesandrelatedequipment 4 to 30 yearsRadio and transmission equipment 8yearsOtherfixedassets 13 months to 30 years

No depreciation is provided on freehold land and capital work in progress.

The assets’ residual values and useful lives are reviewed and adjusted in accordancewithIAS8,whereappropriate,ateachfinancialyear-end.Forfurtherdetailsonthegroupsofassetsinfluencedbythemostrecentusefullife revisions refer to Note 2.19.

Property and equipment are reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. Animpairmentlossisrecognizedfortheamountbywhichtheasset’scarryingamountexceedsitsrecoverableamount.Therecoverableamountis the higher of the asset’s fair value less costs to sell and its value in use. Impairment losses are reversed if the reasons for recognising the original impairment loss no longer apply.

Whenpropertyandequipmentmeetthecriteriatobeclassifiedasheldforsale, they are measured at the lower of their carrying amount and fair value lesscoststosellandarereclassifiedfromnon-currenttocurrent.Propertyandequipmentonceclassifiedasheldforsalearenotdepreciated.

2.3 Intangible assets Intangibleassetsacquiredseparatelyarerecognizedwhencontroloverthem is assumed and are initially measured at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at costlessanyaccumulatedamortizationandanyaccumulatedimpairmentlosses. Intangible assets are assessed for impairment whenever there is an indicationthattheymaybeimpaired.Withtheexceptionofgoodwill,intan-gibleassetshaveafiniteusefullifeandareamortizedusingthestraight-linemethod over the useful life. The assets’ residual values and useful lives are reviewedandadjustedinaccordancewithIAS8,asappropriate,ateachfinancialyear-end.Forfurtherdetailsonthegroupsofassetsinfluencedbythe most recent useful life revisions refer to Note 2.19.


The useful lives assigned to the various categories of intangible assets are asfollows:

Software 2to16yearsLicenses 5to16years

Customer contracts 8to15years

Any gain or loss arising on derecognition of an intangible asset is measured as the difference between the net disposal proceeds and the carrying amount of the asset and are included in the income statement in the period theassetisderecognized.

Computer software and licensesDevelopment costs directly attributable to the design and testing of identifiableanduniquesoftwareproductscontrolledbytheCompanyarerecognizedasintangibleassetswhenthefollowingcriteriaaremet:

a)itistechnicallyfeasibletocompletethesoftwareproductsothatitwillbe available for use;

b)managementintendstocompletethesoftwareproductanduseorsellit;c)thereisanabilitytouseorsellthesoftwareproduct;d)itcanbedemonstratedhowthesoftwareproductwillgenerateprobablefutureeconomicbenefits;

e)adequatetechnical,financialandotherresourcestocompletethedevelo pment and to use or sell the software product are available; and

f) theexpendituresattributabletothesoftwareproductduringitsdevelop-ment can be reliably measured.

Directlyattributablecostscapitalizedaspartofthesoftwareproductincludethesoftwaredevelopmentemployeecosts.Otherdevelopmentex-penditures that do not meet recognition criteria and costs associated with maintainingcomputersoftwareprogramsarerecognizedasanexpenseasincurred.

Acquiredcomputersoftwarelicensesarecapitalizedonthebasisofthecostsincurredtoacquireandbringtousethespecificsoftware.Costcomprises all directly attributable costs necessary to create, produce and prepare the software to be capable of operating in the manner intended by management, including enhancements of applications in use. Cost also includes borrowing costs when those costs are incurred, if the recognition criteria are met.

Costs associated with the acquisition of long term frequency licenses are capitalized.Theusefullivesofconcessionsandlicensesaredeterminedbasedontheunderlyingagreementsandareamortizedonastraight-linebasis over the period from availability of the frequency for commercial use until the end of the initial concession or license term. No renewal periods are considered in the determination of useful life.

GoodwillGoodwill acquired in a business combination is initially measured at cost, beingtheexcessoftheaggregateoftheconsiderationtransferredandtheamountrecognisedfornon-controllinginterestoverthegroup’snetidentifi-able assets acquired and liabilities assumed. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwillisnotamortizedbutreviewedforimpairmentannuallyormorefrequently if events or changes in circumstances indicate that the carrying valuemaybeimpaired(Note15).

2.4 Investments in subsidiariesInvestments in subsidiaries are carried at cost less any accumulated impair-ment losses. The cost of the investment in a subsidiary is based on the cost attributed to the acquisition of the investment, representing fair value of the considerationgiven.Dividendsreceivedfromsubsidiariesarerecognizedas income when the right to receive dividend is established.

2.5 Impairment of non-financial assets Assetsthataresubjecttodepreciationoramortizationarereviewedforimpairment at each reporting date whenever events or circumstances indicate that the carrying amount may not be recoverable. Assets with indefiniteusefullifearetestedforimpairmentannually.Forthepurposeofassessing impairment, assets are grouped at the lowest levels for which thereareseparatelyidentifiablecashflows(cash-generatingunits).TheCompany determines the recoverable amount of a cash-generating unit on the basis of its value in use. The value in use is determined by reference to discountedcashflowscalculations.Thesediscountedcashflowscalcula-tionsarebasedonfinancialbudgetsapprovedbymanagement,usuallycoveringafive-yearperiod,andusedforinternalpurposes.Cashflowsbeyondthedetailedplanningperiodsareextrapolatedusingappropriategrowth rates. Key assumptions on which management bases the determina-tion of value in use include average revenue per user, customer acquisition andretentioncosts,churnrates,capitalexpenditures,marketshare,growthratesanddiscountrates.Thediscountrateusedreflectstheriskspecifictothecash-generatingunit.Cashflowsusedreflectmanagementassump-tionsandaresupportedbyexternalsourcesofinformation.

Investments in subsidiaries are tested for impairment if impairment indica-torsexist.TheCompanyconsiders,asminimum,thefollowingindicatorsofimpairment:thecarryingamountoftheinvestmentintheseparatefinancialstatementsexceedsthecarryingamountsoftheinvestee’snetassetsintheconsolidatedfinancialstatements,includingassociatedgoodwillor;thedividendexceedsthetotalcomprehensiveincomeofthesubsidiaryintheperiod the dividend is declared.

In addition to the general impairment testing of cash-generating units, the Company also tests individual assets if their purpose changes from being held and used to being sold or otherwise disposed of. In such circum-stances the recoverable amount is determined by reference to fair value less costs to sell.

2.6 InventoriesInventoriesarestatedatthelowerofcostandnetrealizablevalue.Costiscalculatedonaweightedaveragebasis.Netrealizablevalueistheesti-mated selling price in the ordinary course of business, less estimated costs necessary to make the sale. An allowance is created against slow-moving and obsolete inventories.

Phone sets are often sold for less than cost in connection with promo-tions to obtain new subscribers with minimum commitment periods. Such loss on the sale of equipment is only recorded when the sale occurs if the normal resale value is higher than the cost of the phone set. If the normal resalevalueislowerthancosts,thedifferenceisrecognizedasimpairmentimmediately.

2.7 Cash and cash equivalentsCash and cash equivalents comprise cash at banks and in hand, short-term deposits with an original maturity of three months or less from the date of


acquisition and short term bonds and promissory notes with high liquidity.

Forthepurposeofthestatementofcashflows,cashandcashequivalentsconsistofcashandcashequivalentsasdefinedabove,netofbankover-drafts.Inthestatementoffinancialposition,bankoverdraftsareincludedinborrowings in current liabilities.

2.8 Financial assets TheCompanyclassifiesitsfinancialassetsinthefollowingcategories:loansandreceivables,financialassetsatfairvaluethroughprofitorlossandheld-to-maturityinvestments.Theclassificationdependsonthepurposeforwhichthefinancialassetswereacquired.TheCompanydeterminestheclassificationofitsfinancialassetsoninitialrecognitionand, where allowed and appropriate, re-evaluates this designation at each financialyearend.Whenfinancialassetsarerecognized,theyareinitiallymeasured at fair value, plus, in the case of investments not held at fair value throughprofitorloss,directlyattributabletransactioncosts.Financialas-setscarriedatfairvaluethroughprofitorlossareinitiallyrecognizedatfairvalue,andtransactioncostsareexpensedintheincomestatement.

Afinancialasset(or,whereapplicableapartofafinancialassetorpartofagroupofsimilarfinancialassets)isderecognizedwhentherightstoreceivecashflowsfromtheassethaveexpiredortheCompanyhastransferreditsrightstoreceivecashflowsfromtheassetandhastransferredsubstantiallyall the risks and rewards of the ownership.

Loans and other receivablesLoansandreceivablesarenon-derivativefinancialassetswithfixedordeterminable payments that are not quoted in an active market. The Company’sloansandreceivablescomprise“Loans”and“Tradeandotherreceivables”.

Trade receivables are amounts due from customers for services performed or merchandise sold in the ordinary course of business. Trade and other receivablesareincludedincurrentassets,exceptformaturitiesgreaterthan 12 months after the end of the reporting period. Trade and other recievablesareinitiallyrecognizedatfairvalueandsubsequentlymeasuredatamortizedcost,usingtheeffectiveinterestmethod,lessprovisionforimpairment. For the purpose of an impairment testing the estimated cash flowsarebasedonthepastexperienceofthecollectibilityofoverduere-ceivables.Therecognizedallowanceforimpairmentreflectstheestimatedcredit risk.

Whenthetradereceivableforwhichanallowancewasrecognizedbe-comes uncollectible or sold, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against costs in the income statement.

Amounts payable to and receivable from the same international operators areshownnetinthestatementoffinancialpositionwhenarighttoset-offexistsandtheCompanyintendstosettlethemonanetbasis.

Financial assets at fair value through profit or lossFinancialassetsatfairvaluethroughprofitorlossarefinancialassetsheldfortradingandfinancialassetsdesignateduponinitialrecognitionasatfairvaluethroughprofitorloss.Derivativesarealsoclassifiedasheldfortrad-ing.Gainsorlossesonassetsheldfortradingarerecognizedintheincomestatementwithinfinancialexpenseorfinancialincome.

The Company does not apply hedge accounting in accordance with IAS 39

foritsfinancialinstruments,thereforeallgainsandlossesarerecognizedintheincomestatementwithinfinancialcostsorfinancialincome.

Held-to-maturity investmentsNon-derivativefinancialassetswithfixedordeterminablepaymentsandfixedmaturitiesareclassifiedasheld-to-maturitywhentheCompanyhas the positive intention and ability to hold them to maturity. After initial recognitionheld-to-maturityinvestmentsaremeasuredatamortizedcostusing the effective interest method. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate. Gains and losses arerecognizedinprofitorlosswhentheinvestmentsarederecognizedorimpaired.

2.9 Impairment of financial assetsThe Company assesses at each reporting date whether there is objective evidencethatafinancialassetisimpaired.Afinancialassetoragroupoffinancialassetsisimpairedandimpairmentlossesareincurredonlyifthereis objective evidence of impairment as a result of one or more events that occurredaftertheinitialrecognitionofthefinancialasset(a‘lossevent’)andthatlossevent(orevents)hasanimpactontheestimatedfuturecashflowsofthefinancialassetorgroupoffinancialassetsthatcanbereliablyestimated.

Impairmentlossesoffinancialassetsarerecognizedintheincomestate-ment against allowance accounts to reduce the carrying amount until derecognitionofthefinancialassetwhenthenetcarryingamount(includ-inganyallowanceforimpairment)isderecognizedfromthestatementoffinancialposition.Anygainsorlossesonderecognitionarecalculatedandrecognizedasthedifferencebetweentheproceedsfromdisposalandthenetcarryingamountderecognizedandarepresentedintheincomestate-ment.

2.10 Financial liabilities TherearetwomeasurementcategoriesforfinancialliabilitiesusedbytheCompany:financialliabilitiescarriedatamortizedcostsrepresentedbytradeandotherpayablesandfinancialliabilitiesatfairvaluethroughprofitorloss.Afinancialliabilityisderecognizedwhentheobligationundertheliabilityisdischargedorcancelledorexpires.

Trade and other payablesTrade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade and other payables are initially measured at fair value. After initial recognition trade andotherpayablesaremeasuredatamortizedcostusingtheeffectiveinterest method.

Financial liabilities at fair value through profit or lossFinancialliabilitiesatfairvaluethroughprofitorlossincludefinancialliabilitiesheldfortradingandfinancialliabilitiesdesignateduponinitialrecognitionasatfairvaluethroughprofitorloss.Derivativesarealsoclas-sifiedasheldfortradingunlesstheyaredesignatedaseffectivehedginginstruments.Gainsorlossesonliabilitiesheldfortradingarerecognizedinprofitorloss.

The Company does not apply hedge accounting in accordance with IAS 39 foritsfinancialinstruments,thereforeallgainsandlossesarerecognizedintheincomestatementwithinfinancialcostsorfinancialincome.


2.11 Prepaid expenses The Company has easement rights to use and access technological equipment sited in properties owned by third parties. These easements are presentedwithinprepaidexpensesinthestatementoffinancialposition.Easementsareinitiallyrecognizedattheirnetpresentvalueandamortizedovertheirexpectedduration.Amortizationofeasementrightsispresentedwithin other operating costs in the income statement.

2.12 Provisions and contingent liabilitiesProvisionsarerecognizedwhentheCompanyhasapresentlegalorcon-structiveobligationasaresultofpastevents,itisprobablethatanoutflowof resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

If the effect of the time-value of money is material, provisions are discounted usingarisk-adjusted,pre-taxdiscountrate.Wherediscountingisused,theincreaseintheprovisionduetothepassageoftimeisrecognizedasafinancialexpense.

Noprovisionisrecognizedforcontingentliabilities.Acontingentliabilityisapossibleobligationthatarisesfrompasteventsandwhoseexistencewillbeconfirmedonlybytheoccurrenceornon-occurrenceofoneormoreun-certain future events not wholly within the control of the entity; or a present obligationthatarisesfrompasteventsbutisnotrecognizedbecauseitisnotprobablethatanoutflowofresourcesembodyingeconomicbenefitswill be required to settle the obligation or the amount of the obligation can-notbemeasuredwithsufficientreliability.

Asset retirement obligationsAsset retirement obligations relate to future costs associated with the retirement(dismantlingandremovalfromuse)ofnon-currentassets.Theamountoftheassetretirementobligationinitiallyrecognizedintheperiodin which incurred is considered as an element of the cost of the related non-currentassetinaccordancewithIAS16.Theobligationisaccretedtoitspresentvalueeachperiod,andthecapitalizedcostisdepreciatedovertheestimatedusefullifeoftherelatednon-currentasset.Uponsettlementof the liability, the Company either settles the obligation for its recorded amount or incurs a gain or loss upon settlement.

Customer loyalty programMembers of the loyalty program, which was operated by the Company until the end of 2011, could have collected loyalty points for certain behaviour (e.g.forarrangingadirectdebitfacility,activationofelectronicbill,etc.)that were in no way related to a sales transaction. Such loyalty points were outsidethescopeofIFRIC13andtheCompanyrecognizedaprovisionagainst other operating costs in accordance with IAS 37 at the time when those points had been granted. Amount of provision was measured at the amountnecessarytosettleexpectedliabilitytoparticipantsoftheloyaltyprogram. For the accounting policy regarding the loyalty points gained from sales transaction refer to Note 2.14.

2.13 Employee benefit obligationsRetirement and other long-term employee benefitsTheCompanyprovidesretirementandotherlong-termbenefitsunderbothdefinedcontributionanddefinedbenefitplans.

Inthecaseofdefinedcontributionplans,theCompanypayscontributionsto publicly or privately administered pension or severance insurance plans on a mandatory or contractual basis. Once the contributions have been

paid, the Company has no further payment obligations. The contribution is based on gross salary payments. The cost of these payments is charged to the income statement in the same period as the related salary cost.

TheCompanyalsoprovidesdefinedretirementandjubileebenefits.Thesebenefitsareunfunded.Thecostsofprovidingbenefitsaredeterminedseparatelyforeachbenefitusingtheprojectedunitcreditactuarialvalua-tionmethod.Thedefinedbenefitliabilitycomprisesthepresentvalueofthedefinedbenefitobligationlesspastservicecostsnotyetrecognized.Thediscount rate is determined using the weighted-average yields for high-quality(BloombergAa*),non-cancellable,non-putablecorporatebonds.The currency and term of the bonds are consistent with the currency and estimatedtermofthebenefitobligations.Thepastservicecostsarerecog-nizedasanexpenseonastraight-linebasisovertheaverageperioduntilthebenefitsbecomevested.Ifthebenefitsbecomevestedimmediatelyfol-lowingtheintroductionof,orchangesto,abenefitplan,pastservicecostsarerecognizedimmediately.

Actuarialgainsandlossesarisingfromexperience-basedadjustmentsandchangesinactuarialassumptionsarerecognizedintheperiodinwhichtheyoccur,withinothercomprehensiveincomeforretirementbenefitsandwithintheincomestatementforjubileebenefits.

Termination benefitsEmployeeterminationbenefitsarerecognizedintheperiodwhenade-tailed plan listing the number and structure of employees to be discharged isdefinedandauthorisedbymanagementandannouncedtothetradeunions.

2.14 Revenue recognitionRevenueisrecognizeduponthedeliveryofservicesandproductsandcustomeracceptancethereofandtotheextentthatitisprobablethateco-nomicbenefitswillflowtotheCompanyandtherevenuecanbemeasuredreliably. Revenue for rendering services and customer equipment sales is shownnetofvalueaddedtaxanddiscounts.Revenueismeasuredatthefair value of consideration received or receivable.

TheCompanyrecognisesrevenueasfollows:

The Company provides customers with narrow and broadband access to its fixed,mobileandTVdistributionnetworks.Servicerevenuesarerecog-nizedwhentheservicesareprovidedinaccordancewithcontractualtermsandconditions.Airtimerevenueisrecognizedbaseduponminutesofuseand contracted fees less credits and adjustments for discounts, while sub-scriptionandflatraterevenuesarerecognizedintheperiodtheyrelateto.

Revenuesfromprepaidcardsarerecognizedwhenusedbyacustomerorwhenthecreditsexpirewithunusedtraffic.

Interconnectrevenuegeneratedfromcallsandothertrafficthatoriginateinotheroperators’networksisrecognizedasrevenueatthetimewhenthecall is received in the Company’s network. The Company pays a proportion of the revenue it collects from its customers to other operators for calls and othertrafficthatoriginateintheCompany’snetworkbutuseotheropera-tors’ networks. These charges are recorded within Interconnection and other fees to operators.

Contentrevenueisrecognizedgrossornetoftheamountduetothecontent provider. Depending on the nature of relationship with the content provider, the gross presentation is used when the Company acts as


aprincipalinthetransactionwiththefinalcustomer.Contentrevenueisrecognizednet,iftheCompanyactsasanagenti.e.thecontentproviderisresponsible for the service content and the Company does not assume the risks and rewards of ownership.

Revenue from multiple revenue arrangements is considered as compris-ingtheidentifiableandseparablecomponents,towhichgeneralrevenuerecognition criteria can be applied separately. Numerous service offers are made up of two components, a product and a service. Once the separable componentshavebeenidentified,theamountreceivedorreceivablefromacustomer is allocated to the individual deliverables based on each compo-nent’sfairvalue.Theamountallocabletoadelivereditem(s)islimitedtotheamount that is not contingent upon the delivery of additional items or meet-ingotherspecifiedperformanceconditions(thenoncontingentamount).

Revenuefromsalesofequipmentisrecognizedwhentheequipmentisdelivered and installation is completed. Completion of an installation is a prerequisiteforrecognizingrevenueonsuchsalesofequipmentwhereinstallationisnotsimpleinnatureandfunctionallyconstitutesasignificantcomponent of the sale.

Revenuefromtheoperatingleasesofequipmentisrecognizedonastraight-line basis over the period of the lease.

Activation fees and subscriber acquisition costsActivationfeesaredeferredovertheexpectedcustomerretentionperiod.This period is estimated on the basis of the anticipated term of the custom-er relationship under the arrangement which generated the activation fee. Subscriber acquisition costs primarily include the loss on the handsets and fees paid to subcontractors that act as agents to acquire new customers. Subscriberacquisitioncostsareexpensedasincurred.

Deferred income – Customer loyalty program The Company has operated the customer loyalty program until 2011. As part of the program, the Company has granted points to the participants, which could be redeemed in future periods for free or discounted goods or services. Revenue allocated to the points granted in sale transaction based on their fair value was deferred when points were granted to customers. Revenuewasrecognizedwhenthecustomersreceivedbenefitsfromtheprogram.

IT revenuesContracts for network services, which consist of the installation and opera-tion of communication networks for customers, have an average duration of2to3years.Revenuesforvoiceanddataservicesarerecognizedundersuch contracts when used by the customer. Revenue from system integra-tioncontractsrequiringthedeliveryofcustomizedproductsand/orservicesisrecognizedwhenthecustomizedcomplexsolutionisbeingdeliveredand accepted by a customer.

Revenuefrommaintenanceservices(generallyfixedfeepermonth)isrecognizedoverthecontractualperiodorwhentheservicesareprovided.Revenue from repairs, which are not part of the maintenance contract, billedonthebasisoftimeandmaterialused,isrecognizedwhentheservices are provided.

Revenue from hardware and software sales or sales-type leases is recognizedwhentheriskofownershipissubstantiallytransferredtothecustomer,providedtherearenounfulfilledobligationsthataffectthecus-tomer’sfinalacceptanceofthearrangement.Anycostsoftheseobligationsarerecognizedwhenthecorrespondingrevenueisrecognized.

Interest and dividendsInterestincomeisrecognizedusingtheeffectiveinterestmethod.Dividendincomeisrecognizedwhentherighttoreceivepaymentisestablished.

2.15 Leases The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an assessment of whetherthefulfilmentofthearrangementisdependentontheuseofaspe-cificassetorassetsandthearrangementconveysarighttousetheasset.

Leasesofassetsinwhichasignificantportionoftherisksandrewardsofownershipareretainedbythelessorareclassifiedasoperatingleases.Pay-ments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease.

Whenanoperatingleaseisterminatedbeforetheleaseperiodhasexpired,anypaymentmadetothelessorbywayofpenaltyisrecognizedasanexpenseintheperiodinwhichtheterminationtakesplace.

ThecontractsareanalyzedbasedontherequirementsofIFRIC4,andifthey include embedded lease elements, the revenues attributable to these arerecognizedaccordingtoIAS17.

Operating lease – the Company as lessorAssets leased to customers under operating leases are included in property andequipmentinthestatementoffinancialposition.Theyaredepreciatedovertheirexpectedusefullivesonabasisconsistentwithsimilarassets.Rentalincomeisrecognizedasrevenueonastraight-linebasisoverthelease term.

Finance lease – the Company as lessorLeasesofassetswheretheCompanytransferssubstantiallyallthebenefitsandrisksofownershiparerecognizedanddisclosedasrevenueagainstafinanceleasereceivable.Therevenueequalstheestimatedpresentvalueof the future minimum lease payments receivable and any unguaranteed residualvalue(netinvestmentinthelease).Thecostoftheassetsoldinafinanceleasetransactionisrecognizedatthecommencementofthelease.Each lease receipt is then allocated between the receivable and interest incomesoastoachieveaconstantrateofreturnonthefinancereceivablebalance outstanding. The interest element of the lease receipt is recog-nizedininterestincome.

Operating lease – the Company as lesseeCosts in respect of operating leases are charged to the income statement on a straight-line basis over the lease term.

2.16 Operating profitOperatingprofitisdefinedastheresultbeforeincometaxesandfinancialincomeandexpenses.ForfinancialincomeandexpensesrefertoNotes9and 10 respectively.

2.17 Foreign currency translationTransactions denominated in foreign currencies are translated into functional currencyusingtheexchangeratesprevailingatthedateofthetransaction.Monetary assets and liabilities denominated in foreign currencies are translated intofunctionalcurrencyusingtheexchangeratesprevailingatthestatementoffinancialpositiondate.Allforeignexchangedifferencesarerecognizedwithinfinancialincomeorexpenseintheperiodinwhichtheyarise.


2.18 Taxes Thetaxexpensefortheperiodcomprisescurrentanddeferredtax.Taxisrecognizedintheincomestatement,excepttotheextentthatitrelatestoitemsrecognizedinothercomprehensiveincome.Inthiscase,thetaxisalsorecognizedinothercomprehensiveincome.

Current income taxCurrentincometaxassetsandliabilitiesforthecurrentandpriorperiodsaremeasuredattheamountexpectedtoberecoveredfromorpaidtothetaxauthorities.Thetaxratesandtaxlawsusedtocalculatetheamountsarethosesubstantivelyenactedatthestatementoffinancialpositiondate.

Deferred taxDeferredtaxisprovidedusingtheliabilitymethodontemporarydifferencesatthestatementoffinancialpositiondatebetweenthetaxbasesofassetsandliabilitiesandtheircarryingamountsforfinancialreportingpurposes.

Deferredtaxliabilitiesarerecognizedforalltaxabletemporarydifferences,exceptwhenthedeferredtaxliabilityarisesfromtheinitialrecognitionofgoodwill or an asset or liability in a transaction that is not a business com-bination and, at the time of the transaction, affects neither the accounting profitnortaxableprofitorloss.

Deferredtaxassetsarerecognizedforalldeductibletemporarydifferences,carry-forwardofunusedtaxlossestotheextentthatitisprobablethatataxableprofitwillbeavailableagainstwhichthedeductibletemporarydifferencesandthecarry-forwardofunusedtaxlossescanbeutilised,exceptwhenthedeferredtaxassetarisesfromtheinitialrecognitionofanasset or liability in a transaction that is not a business combination and, at thetimeofthetransaction,affectsneithertheaccountingprofitnortaxableprofitorloss.

Thecarryingamountofdeferredtaxassetsisreviewedateachstatementoffinancialpositiondateandreducedtotheextentthatitisnolongerprobablethatsufficienttaxableprofitwillbeavailabletoallowallorpartofthedeferredtaxassettobeutilised.

2.19 Significant accounting judgements, estimates and assumptionsThepreparationoftheCompany’sfinancialstatementsrequiresmanage-ment to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent liabilities reported at the end of the period and the reported amounts of revenuesandexpensesforthatperiod.Actualresultsmaydifferfromtheseestimates.

In the process of applying the Company’s accounting policies, manage-ment has made the following judgements, estimates and assumptions whichhavethemostsignificanteffectontheamountsrecognizedinthefinancialstatements:

Useful lives of non-current assets The estimation of the useful lives of non-current assets is a matter of judgementbasedontheCompany’sexperiencewithsimilarassets.TheCompany reviews the estimated remaining useful lives of non-current as-setsannually.Changesintheexpectedusefullifeortheexpectedpatternofconsumptionoffutureeconomicbenefitsembodiedintheassetareaccountedforbychangingtheamortizationperiod,asappropriate,andaretreated as changes in accounting estimates. Management’s estimates and judgements are inherently prone to inaccuracy for those assets for which no previousexperienceexists.

The Company reviewed useful lives of non-current assets during 2011 and changedaccountingestimateswhereappropriate.Thetablesummarizesnet(decrease)/increaseindepreciationchargeforthefollowingcatego-riesoffixedassets:

thousandsofEUR 2011 2012 2013 2014After 2014

Radio base stations (1,165) (1,689) (879) (623) (640)Equipment and special equipment 3,998 3,810 1,715 1,676 1,277

Switching equipment - mobile network 403 1,132 - - -

Other (buildings, halls and other equipment) 64 181 45 22 44

Customer relationshipsThe Company maintains record of customer relationships obtained during the acquisition of control of T-Mobile and regularly evaluates appropriat-nessofusefullivesusedtoamortizetheseintangibleassetsonthebasisofchurn of customers acquired through the business combination.

EasementsOn disposal of certain properties where technological equipment is sited and required for the Company’s operations, the Company enters into agreements to obtain easement rights to continue to use and access this equipmentforextendedperiods.Managementhasdetermined,basedonan evaluation of the terms and conditions of these sales agreements, that theCompanydoesnotretainthesignificantrisksandrewardsofownershipofthepropertiesandaccountsforeasementsasaprepaidexpense.

Assessment of impairment of goodwill The 2010 legal merger with T-Mobile led to recognition of goodwill. Good-will is tested annually for impairment as further described in Note 2.5 using estimates detailed in Note 15.

Asset retirement obligationThe Company enters into lease contracts for land and premises on which mobile communication network masts are sited. The Company is com-mitted by these contracts to dismantle the masts and restore the land and premises to their original condition. Management anticipates the probable settlement date of the obligation to equal useful life of construction of a mast, which is estimated to be 50 years. The remaining useful life of masts ranges from 31 to 50 as at 31 December 2011. Management’s determina-tionoftheamountoftheassetretirementobligation(Note25)involvesthefollowing estimates (in addition to the estimated timing of crystallisation of theobligation):

a)anappropriaterisk-adjusted,pre-taxdiscountratecommensuratewiththe Company’s credit standing;

b)theamountsnecessarytosettlefutureobligations;c)inflationrate.

Provisions and contingent liabilitiesAssetoutinNotes25and28,theCompanyisaparticipantinseverallawsuits and regulatory proceedings. When considering the recognition of aprovision,managementjudgestheprobabilityoffutureoutflowsofeco-nomic resources and estimates the amount needed to settle the possible or probable obligation. Such judgements and estimates are continually reassessedtakingintoconsiderationexperiencewithsimilarcases.


2.20 ComparativesComparative information related to presentation of impact of the legal mergerofSlovakTelekomandT-Mobile(Note4)hasbeenretrospectivelyrestated as management believes that a more appropriate presentation of this common control transaction is to record its impact directly in equity. In 2010mergerimpactfromretainedearningsandprofitfortheaccountingperiodending30June2010ofT-MobileofEUR208,062thousandwasrecorded in the income statement. The affected line items of the compara-tive information in the Income statement, the Statement of comprehensive income, the Statement of changes in equity and the Statement of cash flows,financialincomeandtaxationaresetoutbelow.

thousandsofEUR 2010 2010restated reported

Income statementFinancial income 6,968 215,030Profitbeforetax 96,642 304,704Profitfortheyear 78,052 286,114Statement of comprehensive incomeProfitfortheyear 78,052 286,114

Totalcomprehensiveincomefortheyear,netoftax 77,553 285,615Statement of changes in equityRetained earnings Merger impact 208,223 161Profitfortheyear 78,052 286,114 Total comprehensive income 78,052 286,114Total equity Merger impact 233,010 24,948Profitfortheyear 78,052 286,114 Total comprehensive income 77,553 285,615Statement of cash flowsProfitfortheyear 78,052 286,114Adjustmentfor:Mergerimpact - 208,062Financial income (Note 9)Merger impact - 208,062Totalfinancialincome 6,968 215,030Taxation (Note 11)Profitbeforeincometax 96,642 304,704Incometaxcalculatedatthestatutoryrateof19% 18,362 57,894Merger impact - (39,532)

Restatement of merger impact has no effect on balances in the statement offinancialpositionasof1January2010,thereforenoopeningstatementoffinancialpositionasat1January2010ispresentedinthesefinancialstatements.

Inaddition,thefollowingcomparativeinformationhasbeenreclassifiedinordertoconformtothecurrentyearpresentation:

a)BalanceoftradereceivablesfromsubsidiariesofEUR63thousandisdisclosedatseparateline(Note18)inthe2010comparatives.Inthe2010Note18thisitemwaspresentedwithinTradereceivablesfromrelated parties.

b)BalanceoftradepayablestosubsidiariesofEUR2,649thousandisdisclosedatseparateline(Note24)inthe2010comparatives.Inthe2010 Note 23 this item was presented within Trade and other payables to related parties.

c)Balanceofearn-outpayabletotheformerownerofPosAmamountingtoEUR2,378thousandisdisclosedinNon-currentotherpayables(Note24)inthe2010comparatives.Inthe2010Note24thisitemwaspre-sentedwithinNon-currentprovisions.Thereclassificationwasreflectedalsointhestatementofcashflows.BalanceofEUR143thousandisdisclosed in Interest income, net in the 2010 comparatives. In the 2010 statementofcashflowsthisitemwaspresentedwithinMovementsinprovisions.

d)BalanceofothertelecommunicationservicesofEUR1,898thousandisdisclosedinContentfees(Note7)inthe2010comparatives.Inthe2010 Note 7 this item was presented within Other operating costs.

e)BalanceofotherfeestoTelecommunicationsOfficeof EUR526thousandisdisclosedinFrequencyandotherfeestoTelecom-municationsOffice(Note7)inthe2010comparatives.Inthe2010Note7 this item was presented within Other operating costs.

f) BalanceoffeespaidtoparentcompanyofEUR776thousandisdisclosedinFeespaidtoDTAG(Note7)inthe2010comparatives.Inthe 2010 Note 7 this item was presented within Other operating costs.

Reclassificationofbalanceshasnoimpactonbalancesinthestatementoffinancialpositionasof1January2010,thereforenoopeningstatementoffinancialpositionasat1January2010ispresentedinthesefinancialstatements.

2.21 Adoption of IFRS during the yearStandards, interpretations and amendments to published standards effective for the Company’s accounting period beginning on 1 January 2011

� IAS24RelatedPartyDisclosures(Revised),effectiveforperiodsbeginning on or after 1 January 2011 Thedefinitionofarelatedpartyhasbeenclarifiedtosimplifytheidentificationofrelatedpartyrelationships,particularlyinrelationtosignificantinfluenceandjointcontrol.Apartialexemptionfromthedisclosures has been included for government-related entities, whereby the general disclosure requirements of IAS 24 will not apply. Instead, alternativedisclosureshavebeenincluded,requiring:

� The name of the government and the nature of its relationship with the reporting entity;

� Thenatureandamountofindividuallysignificanttransactions; � Aqualitativeorquantitativeindicationoftheextentofothertransactionsthatarecollectivelysignificant.



TheSlovakGovernmenthassignificantinfluenceontheCompanythrough 49% shareholding. The German Federal Government has significantinfluenceonDeutscheTelekomAG,theultimateparentoftheCompany.TheCompanyusedapartialexemptionavailableforthegovernmentrelatedentitiesandprovidedalternativesimplifieddisclosures(Note27).

� AmendmenttoIAS32FinancialInstruments:Presentation–ClassificationofRightsIssues,effectiveforannualperiodsbeginningonor after 1 February 2010 Thedefinitionofafinancialliabilityhasbeenamendedtoclassifyrightsissues(andcertainoptionsorwarrants)asequityinstrumentsif:

� Therightsaregivenproratatoalloftheexistingownersofthesameclass of an entity’s non-derivative equity instruments;

� Therightsaretoacquireafixednumberoftheentity’sownequityinstrumentsforafixedamountinanycurrency.


The changes resulting from the amendment to IAS 32 are not relevant for the Company.

� Improvements to IFRS issued in May 2010, effective for annual periods beginning on or after 1 July 2010 and 1 January 2011 concern the followingstandards:

� IFRS 1 First-time Adoption of International Financial Reporting Standards

The standard is not relevant for the Company.

� IFRS 3 Business Combinations

� Clarifiesthatthecontingentconsiderationsfrombusinesscombinations that occurred before the effective date of revised IFRS3(issuedinJanuary2008)willbeaccountedforinaccordance with the guidance in the previous version of IFRS 3.

� Requires measurement of non-controlling interests that are not present ownership interest or do not entitle the holder to a proportionate share of net assets in the event of liquidation at fair value (unless another measurement basis is required by other IFRSstandards).

� Provides guidance on the acquiree’s share-based payment arrangements that were un-replaced and voluntarily replaced as a result of a business combination.

TheamendmentisnotrelevantfortheCompany’sseparatefinancialstatements.

� IFRS 7 Financial Instruments Disclosures � Amendeddisclosurerequirementsemphasizetheinteractionbetween quantitative and qualitative disclosures about the nature andextentofrisksassociatedwithfinancialinstruments.

The amendment is relevant for the Company and is applied as required by IFRS 7.

� Removes the requirement to disclose carrying amount of renegotiatedfinancialassetsthatwouldotherwisebepastdueorimpaired.

The amendment is not relevant for the Company.

� Replaces the requirement to disclose fair value of collateral by a moregeneralrequirementtodiscloseitsfinancialeffect.


� Clarifiesthatanentityshoulddisclosetheamountofforeclosedcollateral held at the reporting date, and not the amount obtained during the reporting period.


� IAS 1 Presentation of Financial Statements

� Clarifiesthatanentitywillpresentananalysisofothercomprehensive income for each component of equity, either in thestatementofchangesinequityorinthenotestothefinancialstatements.

The amendment is relevant for the Company and has already been adoptedbytheCompanyinitspreviousyear’sfinancialstatements.

� IAS 27 Consolidated and Separate Financial Statements

� ClarifiesprospectiveapplicationofconsequentialamendmentstoIAS21,IAS28andIAS31thatresultfromchangestoIAS27.


� IAS 34 Interim Financial Reporting

The standard is not relevant for the Company.

� IFRIC 13 Customer Loyalty Programmes

� Themeaningof‘fairvalue’isclarifiedinthecontextofmeasuringaward credits under customer loyalty programmes.

The amendment is relevant for the Company. Fair value used conformstotheIFRIC13definition.

The above amendments resulted in additional or revised disclosures, but had no material impact on measurement or recognition of transac-tionsandbalancesreportedinthesefinancialstatements.

� Amendment to IFRS 1 First-time Adoption of International Financial ReportingStandards–LimitedExemptionfromComparativeIFRS7 Disclosures for First-time Adopters, effective for annual periods beginning on or after 1 July 2010 The amendment is not relevant for the Company.

� AmendmenttoIFRIC14IAS19–TheLimitonaDefinedBenefitAsset,


Minimum Funding Requirements and their Interaction (Prepayments of a MinimumFundingRequirement),effectiveforannualperiodsbeginningon or after 1 January 2011 The amendment is not relevant for the Company.

� IFRIC19ExtinguishingFinancialLiabilitieswithEquityInstruments,effective for annual periods beginning on or after 1 July 2010 The amendment is not relevant for the Company.

Standards, interpretations and amendments to published standards that have been published, are not effective for accounting periods start-ing on 1 January 2011 and which the Company has not early adopted

� Transfers of Financial Assets, Amendments to IFRS 7 Financial Instruments:Disclosures,effectiveforannualperiodsbeginningonorafter 1 July 2011 The amendment requires additional disclosures in respect of risk exposuresarisingfromtransferredfinancialassets.Theamendmentincludes a requirement to disclose by class of asset the nature, carrying amountandadescriptionoftherisksandrewardsoffinancialassetsthat have been transferred to another party, yet remain on the entity’s balance sheet. Disclosures are also required to enable a user to understand the amount of any associated liabilities, and the relationship betweenthefinancialassetsandassociatedliabilities.Wherefinancialassetshavebeenderecognized,buttheentityisstillexposedtocertainrisks and rewards associated with the transferred asset, additional disclosure is required to enable the effects of those risks to be understood.

� IFRS9FinancialInstruments,Part1:ClassificationandMeasurement,effective for annual periods beginning on or after 1 January 2015 IFRS 9, issued in November 2009, replaces those parts of IAS 39 FinancialInstruments:RecognitionandMeasurement,relatingtotheclassificationandmeasurementoffinancialassets.IFRS9wasfurtheramendedinOctober2010toaddresstheclassificationandmeasurementoffinancialliabilities.Keyfeaturesofthestandardareasfollows:

� Financialassetsarerequiredtobeclassifiedintotwomeasurementcategories:thosetobemeasuredsubsequentlyatfairvalue,andthosetobemeasuredsubsequentlyatamortizedcost.Thedecisionistobemadeatinitialrecognition.Theclassificationdependsontheentity’sbusinessmodelformanagingitsfinancialinstrumentsandthecontractualcashflowcharacteristicsoftheinstrument.

� Aninstrumentissubsequentlymeasuredatamortizedcostonlyifitisadebtinstrumentandboth(i)theobjectiveoftheentity’sbusinessmodelistoholdtheassettocollectthecontractualcashflows,and(ii)theasset’scontractualcashflowsrepresentpaymentsofprincipalandinterestonly(thatis,ithasonly“basicloanfeatures”).Allotherdebtinstrumentsaretobemeasuredatfairvaluethroughprofitorloss.

� All equity instruments are to be measured subsequently at fair value. Equity instruments that are held for trading will be measured at fairvaluethroughprofitorloss.Forallotherequityinvestments,anirrevocable election can be made at initial recognition, to recognise

unrealised and realised fair value gains and losses through other comprehensiveincomeratherthanprofitorloss.Thereistobenorecyclingoffairvaluegainsandlossestoprofitorloss.Thiselectionmay be made on an instrument-by-instrument basis. Dividends are to bepresentedinprofitorloss,aslongastheyrepresentareturnoninvestment.

� MostoftherequirementsinIAS39forclassificationandmeasurementoffinancialliabilitieswerecarriedforwardunchangedto IFRS 9. The key change is that an entity will be required to present theeffectsofchangesinowncreditriskoffinancialliabilitiesdesignatedatfairvaluethroughprofitorlossinothercomprehensiveincome.

While adoption of IFRS 9 is mandatory from 1 January 2015, earlier adoption is permitted.

� IFRS 10 Consolidated Financial Statements, effective for annual periods beginning on or after 1 January 2013 IFRS 10 replaces all of the guidance on control and consolidation in IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation – Special-purpose Entities. IFRS 10 changes the definitionofcontrolsothatthesamecriteriaareappliedtoallentitiestodeterminecontrol.Thisdefinitionissupportedbyextensiveapplicationguidance.

� IFRS 11 Joint Arrangements, effective for annual periods beginning on or after 1 January 2013 IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities - Non-Monetary Contributions by Venturers. Changesinthedefinitionshavereducedthenumberoftypesofjointarrangementstotwo:jointoperationsandjointventures.Theexistingpolicy choice of proportionate consolidation for jointly controlled entities has been eliminated. Equity accounting is mandatory for participants in joint ventures.

� IFRS 12 Disclosures of Interests in Other Entities, effective for annual periods beginning on or after 1 January 2013 IFRS 12 applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. It replaces the disclosure requirements currently found in IAS 28,Investmentsinassociates.IFRS12requiresentitiestodiscloseinformationthathelpsfinancialstatementreaderstoevaluatethenature,risksandfinancialeffectsassociatedwiththeentity’sinterestsin subsidiaries, associates, joint arrangements and unconsolidated structured entities. To meet these objectives, the new standard requires disclosuresinanumberofareas,includingsignificantjudgementsand assumptions made in determining whether an entity controls, jointlycontrols,orsignificantlyinfluencesitsinterestsinotherentities,extendeddisclosuresonshareofnon-controllinginterestsingroupactivitiesandcashflows,summarisedfinancialinformationof subsidiaries with material non-controlling interests, and detailed disclosures of interests in unconsolidated structured entities.

� IFRS 13 Fair Value Measurement, effective for annual periods beginning on or after 1 January 2013 IFRS13aimstoimproveconsistencyandreducecomplexitybyprovidingareviseddefinitionoffairvalue,andasinglesourceoffair


value measurement and disclosure requirements for use across IFRSs.

� Amendment to IAS 1 Presentation of Financial Statements – Presentation of items of other comprehensive income, effective for annual periods beginning on or after 1 July 2012 The amendment changes the disclosure of items presented in other comprehensive income. The amendments require entities to separate items presented in other comprehensive income into two groups, based onwhetherornottheymaybereclassifiedtoprofitorlossinthefuture.ThesuggestedtitleusedbyIAS1haschangedto‘Statementofprofitorloss and other comprehensive income’.

� IAS19(Revised)EmployeeBenefits,effectiveforannualperiodsbeginning on or after 1 January 2013 Theamendmentmakessignificantchangestotherecognitionandmeasurementofdefinedbenefitpensionexpenseandterminationbenefits,andtothedisclosuresforallemployeebenefits.Thestandardrequiresrecognitionofallchangesinthenetdefinedbenefitliability(asset)whentheyoccur,asfollows:(i)servicecostandnetinterestinprofitorloss;and(ii)re-measurementsinothercomprehensiveincome.

� IAS27(Revised)SeparateFinancialStatements,effectiveforannualperiods beginning on or after 1 January 2013 IAS 27 was changed and its objective is now to prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financialstatements.TheguidanceoncontrolandconsolidatedfinancialstatementswasreplacedbyIFRS10,ConsolidatedFinancialStatements.

� IAS28(Revised)InvestmentsinAssociatesandJointVentures,effectivefor annual periods beginning on or after 1 January 2013 TheamendmentstoIAS28resultedfromtheBoard’sprojectonjoint ventures. When discussing that project, the Board decided to incorporate the accounting for joint ventures using the equity method intoIAS28becausethismethodisapplicabletobothjointventuresandassociates.Withthisexception,otherguidanceremainedunchanged.

� Improvements to IFRS (IFRS 1 First-time Adoption of IFRS, IAS 1 PresentationofFinancialStatements,IAS16Property,PlantandEquipment,IAS32FinancialInstruments:Presentation,IAS34InterimFinancialReporting),effectiveforannualperiodsbeginningonorafter1 January 2013.

� Otherrevisedstandardsandinterpretations: The amendments to IFRS 1 First-time adoption of IFRS, relating to severehyperinflationandeliminatingreferencestofixeddatesforcertainexceptionsandexemptions,willnothaveanyimpactonthesefinancialstatements.TheamendmenttoIAS12IncomeTaxes,whichintroduces a rebuttable presumption that an investment property carried at fair value is recovered entirely through sale, will not have anyimpactonthesefinancialstatements.IFRIC20StrippingCostsinthe Production Phase of a Surface Mine, considers when and how to accountforthebenefitsarisingfromthestrippingactivityinminingindustry.

The future implications of standards, interpretations and amendments that are relevant to the Company are being continuously evaluated and will be applied in accordance with the requirements if applicable.

3. Financial risk management

TheCompanyisexposedtoavarietyoffinancialrisks.TheCompany’sriskmanagementpolicyaddressestheunpredictabilityoffinancialmarketsandseekstominimizepotentialadverseeffectsontheperformanceoftheCompany.

TheCompany’sfinancialinstrumentsincludecashandcashequivalents,short-term deposits, held-to-maturity investments and loans. The main purpose of these instruments is to manage the liquidity of the Company.

TheCompanyholdsfinancialassetswhichrepresentitsinvestmentinsubsidiaries.Thesefinancialassetsaredeemedtobelong-term.

TheCompanyhasvariousotherfinancialassetsandliabilitiessuchastradereceivables and trade payables which arise from its operations.

The Company enters into derivative transactions. The purpose is to manage the foreign currency risk arising from the Company’s operations. The Com-pany does not perform speculative trading with the derivative instruments.

ThemainrisksarisingfromtheCompany’sfinancialinstrumentsaremarketrisk,creditriskandliquidityrisk.TheTreasuryandTaxesDepartmentisresponsibleforfinancialriskmanagement,inaccordancewithguidelinesapproved by the Board of Directors and the DT AG Treasury Depart-ment.TheTreasuryandTaxesDepartmentworksinassociationwiththeCompany’s operating units and with the DT AG Treasury Department. There arepoliciesinplacetocoverspecificareas,suchasmarketrisk,creditrisk,liquidityrisk,theinvestmentofexcessfundsandtheuseofderivativefinancialinstruments.

3.1 Market riskMarketriskistheriskthatthefairvalueorfuturecashflowsofafinancialinstrumentwillfluctuatebecauseofchangesinmarketprices.Marketriskcomprisesthreetypesofrisk:foreigncurrencyrisk,interestrateriskandother price risk.

3.1.1 Foreign currency riskForeigncurrencyriskistheriskthatthefairvalueoffuturecashflowsofafinancialinstrumentwillfluctuatebecauseofchangeinforeignexchangerates.

TheCompanyisexposedtotransactionalforeigncurrencyriskarisingfrominternationalinterconnectivity.Inaddition,theCompanyisexposedtorisksarisingfromcapitalandoperationalexpendituresdenominatedinforeigncurrencies.

The Company can use forward currency contracts, currency swaps or spot-markettradingtoeliminatetheexposuretowardsforeigncurrencyrisk.Hedgingfinancialinstrumentsmustbeinthesamecurrencyasthehedgeditem. It is the Company’s policy to negotiate the terms of the hedge deriva-tivestomatchthetermsofthehedgeditemtomaximizehedgeeffective-ness. Such a hedge however does not qualify for hedge accounting under thespecificrulesofIAS39.


Short-term cash forecasts are prepared on a rolling basis to quantify the Company’sexpectedexposure.TheCompany’sriskmanagementpolicyrequiresthehedgingofeverycashflowdenominatedinforeigncurrencyexceedingtheequivalentofEUR50thousand.

In 2010 and 2011, the Company entered into currency forward contracts tohedgeitsforeigncurrencyexposurearisingonitsfirmcommitmentsforfuturecapitalandoperatingexpenditures.Theforwardcontractsareexpectedtomatureonthedateoftheanticipatedforeigncurrencycashexpenditures.TheCompany’smainexposureistochangesinUSDforeignexchangerates,withimmaterialriskrelatedtofinancialassetsandfinancialliabilities denominated in other foreign currencies.

ThefollowingtabledetailsthesensitivityoftheCompany’sprofitbeforetaxandequitytoa10%increase/decreaseintheEURagainstUSD,withall other variables held as constant. The 10% change represents manage-ment’sassessmentofthereasonablypossiblechangeinforeignexchangerate and is used when reporting foreign currency risk internally in line with treasury policies.

thousandsofEUR 2011 2010Profitbeforetax DepreciationofEURby10% (117) 146

AppreciationofEURby10% 96 (120)Equity DepreciationofEURby10% (95) 118

AppreciationofEURby10% 78 (97)

3.1.2 Interest rate riskTheCompany’sincomeandoperatingcashflowsaresubstantiallyindependent of changes in market interest rates. The Company entered intoamasteragreementwithDTAGinOctober2008basedonwhichtheCompanyprovidesloanstoDTAG(Note21).

TheCompany’sexposuretotheriskofchangesinmarketinterestratesrelates mainly to the Company’s held–to-maturity investments. The Com-panyseekstooptimizeitsexposuretowardsinterestrateriskusingamixoffixed–rateandfloating–ratesecurities.Attheendof2011,thesecuritiesportfolioconsistsoffixed-ratebondsandonetreasurybill.

The sensitivity of held-to-maturity investments to changes in interest rates is detailed in Note 29.

3.1.3 Other price riskOtherpriceriskarisesonfinancialinstrumentsbecauseofchangesin,forexamplecommoditypricesorequityprices.TheCompanyisnotexposedto such risks.

3.2 Credit riskCreditriskistheriskthatonepartytoafinancialinstrumentwillcauseafinanciallossfortheotherpartybyfailingtodischargeanobligation.

TheCompanyisexposedtocreditriskfromitsoperatingactivitiesandcer-tainfinancingactivities.TheCompany’screditriskpolicydefinesproducts,maturitiesofproductsandlimitsforfinancialcounterparties.TheCompanylimitscreditexposuretoindividualfinancialinstitutionsandsecuritiesissuers on the basis of the credit ratings assigned to these institutions by reputable rating agencies and these limits are reviewed on a regular basis. For credit ratings see Notes 21 and 22.

The Company establishes an allowance for impairment that represents its estimate of losses incurred in respect of trade and other receivables. Impairmentlossesarerecognizedtocoverbothindividuallysignificantcreditriskexposuresandacollectivelosscomponentforassetsthatareassessed not to be impaired individually. Objective evidence of impairment foraportfolioofreceivablesincludestheCompany’spastexperienceofcollectingpayments,aswellaschangesintheinternalandexternalratingsof customers.

Inrespectoffinancialassets,whichcomprisecashandcashequivalents,short-termdeposits,held-to-maturityinvestments,derivativefinancialinstruments,loansandtradereceivables,theCompany’sexposuretocreditriskarisesfromthepotentialdefaultofthecounterparty,withamaximumexposureequaltothecarryingamountofthesefinancialassets.InJune2011 the Company and Poštová banka, a.s. signed an Agreement about establishment of a right of lien on securities. The Company thus secured its receivablestomaximumprincipalamountofEUR50,000thousand.Intotal,Poštovábankapledged16,880piecesofthestatebondSK4120004565withanominalvalueofEUR56,000thousand.Noothersignificantagree-mentsreducingthemaximumexposuretocreditriskhadbeenconcludedat 31 December 2011.

TheCompanyassessesitsfinancialinvestmentsateachreportingdatetodetermine whether there is any objective evidence that they are impaired. Afinancialinvestmentisconsideredtobeimpairedifobjectiveevidenceindicates that one or more events have had a negative effect on the esti-matedfuturecashflowsofthatinvestment.Significantfinancialinvestmentsaretestedforimpairmentonanindividualbasis.Theremainingfinancialinvestments are assessed collectively in groups that share similar credit risk characteristics.

Animpairmentlossinrespectofafinancialinvestmentiscalculatedasthe difference between its carrying amount and the present value of the estimatedfuturecashflowsdiscountedattheoriginaleffectiveinterestrate.Allimpairmentlossesarerecognizedinprofitorloss.Animpairmentlossis reversed if the reversal can be related objectively to an event occurring aftertheimpairmentlosswasrecognized.Thereversaloftheimpairmentlossisrecognizedinprofitorloss.


Nosignificantindividuallyimpairedtradereceivableswereincludedintheprovision for impairment losses in 2011 and 2010.

Tradereceivablesthatarepastdueasatthestatementoffinancial position date, but not impaired, are from creditworthy customers who have a good track record with the Company and, based on historical default rates, management believes that no additional impairment allowance is necessary.

Thetablesummarisestheageingstructureofreceivables:

thousandsofEUR


Trade receivables 83,263 388 268 151 581 116Finance lease receivable 6,063 - - - - -


Trade receivables 91,174 615 78 19 39 91

3.3 Liquidity riskLiquidityriskistheriskthatanentitywillencounterdifficultyinmeetingobligationsassociatedwithfinancialliabilitiesthataresettledbydeliveringcashoranotherfinancialasset.

TheCompany’sliquidityriskmitigationprinciplesdefinethelevelofcashand cash equivalents, marketable securities and the credit facilities avail-able to the Company to allow it to meet its obligations on time and in full. The funding of liquidity needs is based on comparisons of income earned on cash and cash equivalents and held-to-maturity investments with the costoffinancingavailableoncreditfacilities,withtheobjectiveofholdingpredetermined minimum amounts of cash and cash equivalents and credit facilities available on demand.

ThetablesummarizesthematurityprofileoftheCompany’sfinancialliabilitiesbasedoncontractualundiscountedpayments:

thousandsofEUR

At 31 December 2011 On demand Less than 3 months 3 to 12 months Over 1 year TotalTrade payables 4,057 99,986 253 - 104,296Contingentconsideration(earn-out) - - 2,438 - 2,438

At 31 December 2010 On demand Less than 3 months 3 to 12 months Over 1 year TotalTrade payables 5,505 104,863 15 - 110,383Contingentconsideration(earn-out) - - - 2,378 2,378

3.4 Capital risk managementThe Company manages its capital to ensure its ability to support its busi-nessactivitiesonanongoingbasis,whilemaximizingthereturntoitsshareholdersandbenefitsforotherstakeholdersthroughoptimizationofitscapital structure to reduce the cost of capital. It takes into consideration any applicable guidelines of the majority shareholder. No changes were made to the objectives, policies or processes in 2011.


The capital structure of the Company consists of equity attributable to shareholders, comprising issued capital, share premium, statutory reserve fund,retainedearningsandothercomponentsofequity(Note23).Themanagement of the Company manages capital measured in terms of share-holder’s equity amounting to as at 31 December 2011 EUR1,644,206thousand(2010:EUR1,667,070thousand).

4.SlovakTelekomandT-MobileSlovensko(merger)

T-Mobileceasedtoexistasalegalentitywitheffectfrom1July2010andwas wound up without liquidation as of 30 June 2010 on the basis of a merger agreement concluded between Slovak Telekom and T-Mobile. On 17 June 2010, the merger agreement was approved by the sole shareholder ofT-MobileandbytheextraordinaryGeneralMeetingofSlovakTelekom.Atthe same time, the agreement was signed by the members of the Board of Directors of both companies.

As of the date of registration of the merger in the Commercial Register, assets and liabilities of T-Mobile passed to Slovak Telekom, which became the universal legal successor. The share capital of Slovak Telekom of EUR864,113thousandremainedunchangeduponthemerger.

To achieve a true and fair presentation of the merger, the assets and liabili-tiesofT-MobilewererecognizedattheircarryingvaluesasifpresentedintheconsolidatedfinancialstatementsofSlovakTelekomat30June2010(seealsoNote(a)undertheStatementofchangesinequity).

Forthepurposesofthepreparationofstatementoffinancialposition,theCompanyassumedthefollowingtransactions:

Equity:SharecapitalofT-MobileofEUR123,993thousandwasassumedinfull as the retained earnings of Slovak Telekom. The statutory reserve fund ofT-MobileofEUR24,787thousandwasassumedinfullasthestatutoryreservefundofSlovakTelekom.Retainedearningsandprofitfortheaccount ing period ending 30 June 2010 of T-Mobile of EUR208,062thousandwereassumedinfullintheretainedearningsofSlovakTelekom(Note2.20).

Financialinvestments:ThefinancialinvestmentinT-Mobileof EUR378,946thousandwaseliminatedfromSlovakTelekom’sstatementoffinancialpositionandtheretainedearningsofSlovakTelekomwerereduced by the same amount.

Non-currentassets:Thenon-currentassetswererecognizedtoSlovakTelekom’sstatementoffinancialpositionwithreferencetothecarryingvaluesasifpresentedintheconsolidatedfinancialstatementsofSlovak Telekom at 30 June 2010. Non-current assets were increased by EUR210,427thousand(T-Mobilecustomerlists,brand,radioandswitchingequipment),atthesametime,therelateddeferredtaxliabilityofEUR39,981thousandwasrecorded,andgoodwillof EUR73,313thousandrecognized.Thedoubleentryforthesetransactionswas the retained earnings of the Company. Assets of EUR37,394thousandwerereclassifiedfrompropertyandequipmenttointangible assets.

Mutualreceivablesandliabilities:Mutualreceivablesandliabilitiesof T-Mobile and Slovak Telekom were eliminated in the statement of the financialposition.

Provisions:Theprovisionforthe“UniversalServiceObligation”of

EUR14,020thousandandrelateddeferredtaxreceivableof EUR2,665thousandcreatedbyT-MobilewasreleasedthroughretainedearningsinSlovakTelekom’sstatementoffinancialposition.TheprovisionwasoriginallyrecognizedbyT-Mobiletocovertheriskofpotentialpay-ments to Slovak Telekom to contribe to Slovak Telekom’s costs related to UniversalServiceObligation.Theriskceasedtoexistthroughthemerger.

Other:Valuationallowancestoassets,provisions,accrualsandprepay-mentswereassumedinfullbySlovakTelekomandrecognizedinthesameamount and structure.

The comparative information presented in the income statement for the yearended31December2010doesnotincludeincomeandexpensesofmobilebusiness(formerT-Mobile)forthefirstsixmonthsoftheyear2010.Therefore, the 2010 comparative data are not entirely comparable.

The transfer of assets, liabilities and equity of T-Mobile as at 1 July 2010 wasperformedinthefollowingamounts:

thousandsofEUR 1 July 2010ASSETSNon-current assetsPropertyandequipment(Note13) 204,515Intangibleassets(Note14) 286,861Goodwill(Note14) 73,313Held-to-maturity investments 13,144Prepaidexpensesandotherassets 1,481

579,314Current assetsInventories 5,616Trade and other receivables 60,224Prepaidexpensesandotherassets 5,315Held-to-maturity investments 14,824Incometax 1,730Derivatives 43Cash and cash equivalents 69,243

156,995

TOTAL ASSETS 736,309

EQUITY AND LIABILITIESShareholders’ equityShare capital -Statutory reserve fund 24,787Retained earnings and other components of equity 587,169

611,956

Non-current liabilitiesProvisions 8,241Deferredtax 48,203Other payables and deferred income 987

57,431Current liabilitiesTrade and other payables 49,779Deferred income and other liabilities 13,612Provisions 3,531

66,922

Total liabilities 124,353

TOTAL EQUITY AND LIABILITIES 736,309


5. Revenue

thousandsofEUR 2011 2010Voice services 141,828 168,685Content services 11,257 13,792Terminal equipment 10,211 9,113Data services 45,231 50,621Fixed network communication revenue 208,527 242,211

Wholesale revenue 70,116 66,971IP / Internet revenue 96,204 92,756Total fixed network and broadband revenue 374,847 401,938

Mobile communication revenue 462,400 247,978

Other revenue 30,495 19,552Total revenue 867,742 669,468

6.Staffcosts

thousandsofEUR 2011 2010Wages and salaries 107,574 95,948Social security contributions 26,815 24,085

134,389 120,033

2011 2010Number of employees at period end 3,871 4,650

NumberofemployeesdoesnotincludeexpatriatesworkingfortheCom-panyasof31December2011:3(2010:4).

7. Other operating costs

thousandsofEUR 2011 2010Repairs and maintenance 22,183 16,078Outsourced services 11,752 13,004Marketing 23,538 23,451Energy 16,509 11,936Postal services 4,934 5,579Rentals and leases 18,612 13,722IT services 12,584 10,178Dealers’ commissions 20,746 15,887Material sold 2,865 3,862Business trips and training 2,283 1,702

Frequency and other fees to TelecommunicationsOffice(Note27) 7,353 3,854Content fees 15,745 11,614Consultancy 10,038 8,109Baddebtsexpenses 2,908 3,597Customer solutions 9,732 9,456Fees paid to DT AG 4,658 776Other 18,548 20,102Ownworkcapitalized (12,994) (14,863)

191,994 158,044

8.Otheroperatingincome

thousandsofEUR 2011 2010Gain on disposal of property and equipment, net 996 361Income from material sold 4,855 5,780Income from termination of loyalty program 2,167 -Reversalofimpairmentofassets(Note12,13) 290 4,146Other 5,879 3,446

14,187 13,733

9. Financial income

thousandsofEUR 2011 2010restated

Dividendsfromsubsidiaries(Note27) 1,020 2,658Reversal of impairment of held-to-maturity investments - 664Interest on short-term deposits 1,681 466Interest on intragroup loans 2,777 1,458Interest on held-to-maturity investments 1,352 877Interestfromfinancelease 121 -Other 875 845

7,826 6,968

10.Financialexpense

thousandsofEUR 2011 2010Impairment of intragroup loan - 289Impairmentofinvestmentsinsubsidiaries(Note16) 2,500 -Impairment of held-to-maturity investments 199 -Changeinfairvalueofearn-outpayable(Note24) 60 143Employeebenefits-interestcost 377 93Foreignexchangelosses,net 173 464Netlossonfinancialinstrumentsheldfortrading 53 110Interest cost on restoration obligations 182 231Bankchargesandotherfinancialexpense 65 72

3,609 1,402

11.Taxation

Themajorcomponentsofincometaxexpensefortheyearsended 31Decemberare:

thousandsofEUR 2011 2010Currenttaxexpense 41,210 25,006Deferredtaxincome (12,022) (6,416)Income tax expense reported in the income statement 29,188 18,590



thousandsofEUR 1 January 2011Through income

statementThrough other

comprehensive income 31 December 2011Differencebetweencarryingandtaxvalueoffixedassets (160,786) 13,993 - (146,793)Allowance for held-to-maturity investments 1,922 38 - 1,960Staff cost accruals 1,496 636 - 2,132Allowance for bad debts 3,531 (1,047) - 2,484Terminationbenefits 752 (316) - 436Other 4,451 (1,282) (627) 2,542Net deferred tax liability (148,634) 12,022 (627) (137,239)


thousandsofEUR 1 January 2010

Through business

combination

Through income

statementThrough other

comprehensive income 31 December 2011Differencebetweencarryingandtaxvalueoffixedassets (111,118) (55,259) 5,591 - (160,786)Allowance for held-to-maturity investments 1,024 1,024 (126) - 1,922Staff cost accruals 712 492 292 - 1,496Allowance for bad debts 863 2,320 348 - 3,531Terminationbenefits 667 - 85 - 752Other 887 3,221 226 117 4,451Net deferred tax liability (106,965) (48,202) 6,416 117 (148,634)

Reconciliationbetweenthereportedincometaxexpenseandthetheoreticalamountthatwouldariseusingthestatutorytaxrateisasfollows:

thousandsofEUR 2011 2010restated

Profitbeforeincometax 143,121 96,642

Incometaxcalculatedatthestatutoryrateof19%(2010:19%) 27,193 18,362

Effectofincomenottaxableandexpensesnottaxdeductible:Dividends (194) (505)Creation/(release)oflegalandregulatoryprovisions 67 (107)Othertaxnon-deductibleitems,net 2,024 884

Taxcharge/(recovery)inrespectofprioryears 98 (44)Income tax at the effective tax rate of 20% (2010: 19%) 29,188 18,590

12. Assets held for sale

Land, buildings and related equipmentthousandsofEUR 2011 2010

At 1 January 1,134 8,314

Net transfer to and from property and equipment(Note13) (978) (7,253)Reversalofimpairmentcharge(Note8) - 470Assets sold (156) (397)At 31 December - 1,134

TheCompanytransferredduring2011assetsofEUR978thousandtopro-pertyandequipment.TheseassetsceasedtomeetthecriteriatobeclassifiedasheldforsaleastheCompanydoesnotexpectthesaletobecompletedwithinoneyear.Therewasnofinancialimpactfromthetransaction.


13. Property and equipment

thousandsofEUR

Land and

buildingsy

Duct, cable and other

outside plant


related equipment

Radio and trans-mission

equipment

Other

Capital work in progress including

advances

TotalAt 1 January 2011Cost 177,406 969,757 1,248,939 294,151 274,303 51,435 3,015,991Depreciation (69,443) (418,166) (1,073,248) (215,217) (167,342) (726) (1,944,142)Net book value 107,963 551,591 175,691 78,934 106,961 50,709 1,071,849Additions 4,049 11,608 17,168 3,246 22,705 31,393 90,169Depreciation charge (6,692) (31,613) (58,199) (25,858) (30,175) - (152,537)Impairment charge (1,951) (40) (1,032) (1,106) (1,939) (685) (6,753)Reversal of impairment 135 36 12 - 40 67 290Disposals (1,017) (2) (181) (4) (328) - (1,532)Transfers 3,816 1,184 9,845 (662) 11,494 (25,694) (17)Transfers from assets held for sale 975 2 - - 1 - 978At 31 December 2011Cost 183,028 976,989 1,252,728 315,109 306,152 57,128 3,091,134Depreciation (75,750) (444,223) (1,109,424) (260,559) (197,393) (1,338) (2,088,687)Net book value 107,278 532,766 143,304 54,550 108,759 55,790 1,002,447

Propertyandequipment,excludingmotorvehicles,isinsuredtoalimitofEUR25,000thousand(2010:EUR25,000thousand).MotorvehiclesareinsuredtoalimitofEUR2,500thousand(2010:EUR2,500thousand)fordamageonhealthandexpensesrelatedtodeathandEUR664thousandfordamagecausedbydestroyed,seizedorlostitems,lostprofits.

The impairment charge relates mainly to the buildings which the Company intends to be sold and to the equipment and other assets which are considered to be obsolete, has no future use and will be either sold or liquidated.

thousandsofEUR

Land and buildings

Duct, cable and other

outside plant


related equipment

Radio and trans-mission

equipment

Other

Capital work in progress including

advances

TotalAt 1 January 2010Cost 107,753 956,388 1,176,754 - 132,446 14,461 2,387,802Depreciation (29,450) (391,785) (998,376) - (69,242) (525) (1,489,378)Net book value 78,303 564,603 178,378 - 63,204 13,936 898,424Additions from merger in net book value 22,648 - 27,942 89,362 44,094 20,469 204,515Additions 3,222 16,731 18,723 3,513 23,769 27,027 92,985Depreciation charge (5,955) (30,899) (54,277) (14,910) (23,891) - (129,932)Impairment charge (487) (213) (1,364) - (1,668) (654) (4,386)Reversal of impairment 3,676 - - - - - 3,676Disposals (231) (27) (96) - (324) (8) (686)Transfers 245 943 6,259 969 1,645 (10,061) -Transfers to and from assets held for sale 6,542 453 126 - 132 - 7,253At 31 December 2010Cost 177,406 969,757 1,248,939 294,151 274,303 51,435 3,015,991Depreciation (69,443) (418,166) (1,073,248) (215,217) (167,342) (726) (1,944,142)Net book value 107,963 551,591 175,691 78,934 106,961 50,709 1,071,849


14. Intangible assets

thousandsofEUR Software Licenses Goodwill Customer contractsIntangibles under

construction TotalAt 1 January 2011Cost 401,446 85,612 73,313 411,329 32,746 1,004,446Amortization (359,123) (49,026) - (218,738) (218) (627,105)Net book value 42,323 36,586 73,313 192,591 32,528 377,341Additions 11,990 47,767 - - 19,995 79,752Additions from internal developments 168 - - - - 168Amortizationcharge (30,853) (6,296) - (35,672) - (72,821)Transfers 20,317 - - - (20,300) 17

At 31 December 2011Cost 428,343 133,379 73,313 406,622 32,223 1,073,880Amortization (384,398) (55,322) - (249,703) - (689,423)Net book value 43,945 78,057 73,313 156,919 32,223 384,457

InAugust2011theTelecommunicationOfficeoftheSlovakRepublicprolongedthelicensefortheprovisionofmobileservicesunderthefrequenciesof900MHz,1800MHzand450MHzforthepriceofEUR47,767thousand(Notes1,27).Carryingvalueofthelicenseasat31December2011is EUR45,777thousandandlicenseisvaliduntil31August2021.

GoodwillandcustomercontractswererecognizedatthemergerofSlovakTelekomwithT-Mobileon1July2010(Note4)intheamountof EUR73,313thousandandEUR210,427thousand,respectively.GoodwillandcustomercontractsaroseontheSlovakTelekom’sacquisitionofacontrol-linginterestinT-Mobileat31December2004.Carryingvaluesofcustomercontractsasat31December2011andremainingusefullivesare: EUR115,169thousandand6yearsforpost-paidbusinesscustomers,EUR31,333thousandand3yearsforpost-paidresidentialcustomers, EUR4,571thousandand1yearforprepaidcustomers,EUR5,847thousandand4yearsforDNScustomers.

thousandsofEUR Software Licenses GoodwillCustomer contracts

Intangibles under construction Spolu

At 1 January 2010Cost 189,896 - - - 6,431 196327Amortization (167,839) - - - - (167839)Net book value 22,057 - - - 6,431 28 488Additions from merger in net book value 25,134 39,040 73,313 210,427 12,260 360174Additions 13,495 - - - 19,276 32 771Additions from internal developments 481 - - - - 481Amortizationcharge (24,065) (2,454) - (17,836) - (44355)Impairment charge - - - - (218) (218)Transfers 5,221 - - - (5,221) -

At 31 December 2010Cost 401,446 85,612 73,313 411,329 32,746 1004446Amortization (359,123) (49,026) - (218,738) (218) (627105)Net book value 42,323 36,586 73,313 192,591 32,528 377 341


15. Impairment of goodwill

ThegoodwillpreviouslyrecognizedattheacquisitionofT-MobilewastransferredtothestatementofthefinancialpositionoftheCompanyonthemergeron1July2010(Note4).Theamountofgoodwillrecognizedisasfollows:


T-Mobile 73,313 73,31373,313 73,313

The goodwill is tested for impairment by DT AG. Since 2011 it is tested on Slovak Telekom level. The recoverable amount of the cash-generating unit wasdeterminedusingcashflowsprojectionsbasedontheten-yearfinan-cial plans that have been approved by management and are also used for internalpurposes.Cashflowsbeyondtheten-yearperiodareextrapolatedusinga2%growthrate(2010:2%)andadiscountrateof6.99%(2010:7.62%).Thisgrowthratedoesnotexceedthelong-termaveragegrowthrate for the market in which the cash-generating unit operates. Further key assumptions on which management has based its determination of the recoverable amount of cash-generating unit include the development of revenue, customer acquisition and retention costs, churn rates, capital expendituresandmarketshare.Therecoverableamountofthecash-gene-ratingunitbasedonvalueinusecalculationwasdeterminedtoexceeditscarrying value. Management believes that any reasonably possible change in the key assumptions on which the cash-generating unit’s recoverable amountisbasedwouldnotcauseitscarryingamounttoexceedits recoverable amount.


AllsubsidiariesareincorporatedintheSlovakRepublicand,exceptforPosAm, are wholly owned by the Company. Shares in the subsidiaries are not traded on a public market.

On 11 February 2010, the Board of Directors of Slovak Telekom approved theliquidationoftheInstituteofNextGenerationNetworks.TheliquidationwascompletedinNovember2010andtheentityceasedtoexistinJuly2011.

CostofinvestmentinZoznamandZoznamMobilein2011isnetofimpair-mentofEUR1,562thousandandEUR938thousandrespectively,asthecarryingvalueofinvestmentexceededitsrecoverableamountcalculatedasapresentvalueofsubsidiaries’futurecashflows.

On 29 January 2010, Slovak Telekom acquired 51% equity interest in PosAm.Thefinalpurchasepricewillbedeterminedbytheamountofcontingentconsideration(earn-out),dependingontheEBITDAlevelforthefinancialperiods2010and2011cumulatively,thatwillbepaidin2012(Note24).SlovakTelekomandtheformerownerofPosAmalsoagreedonput&calloptionswhich,iftriggered,mayresultinthetransferofthere-sidual 49% equity interest in PosAm. PosAm is an unlisted company, which specializesinITservices,ownsoftwaredevelopmentandhardwareandsoftwarelicencessale.TheCompanyacquiredPosAmbecauseitextendsthe range of services that can be offered to its clients. As a result of the acquisition,theCompanyisexpectedtoincreasethepresenceofthegroupin the information and communications technology markets.

In December 2009, the Board of Directors of the Company approved the concept of the integration of Slovak Telekom with its 100% subsidiary T-Mobile.T-Mobileceasedtoexistwitheffectfrom1July2010.Forintegra-tion of Slovak Telekom with T-Mobile refer to Note 4.

17. Inventories

thousandsofEUR 2011 2010Cables, wires and spare parts 2,878 3,963Phones, accessories for mobile communication 7,209 5,996Other inventory including goods for resale 1,105 3,686

11,192 13,645

The Company reversed write-down of inventories in amount of EUR541thousand(2010:write-downexpenseEUR15thousand)whichisrecognizedincostofmaterialandequipment.

16.Investmentsinsubsidiaries

At31December2011theCompanyheldthefollowinginvestmentsinsubsidiaries:

thousandsofEUR Cost of investment

Cost of investment Profit Profit Net assets Net assets

NameandRegisteredoffice Activity 2011 2010 2011 2010 2011 2010

PosAm, spol. s r.o. Odborárska21,83102Bratislava

IT services, applications and business solutions 12,968 12,968 2,366 2,995 7,240 6,874

Zoznam,s.r.o.Viedenskácesta3-7,85101Bratislava Internet portal 2,346 3,908 123 (326) 1,771 1,648ZoznamMobile,s.r.o.Viedenskácesta3-7,85101Bratislava

Mobile content provider 1,410 2,348 60 171 368 309

Telekom Sec, s.r.o. Kukučínova52,83103Bratislava Security services 7 7 (3) (4) 3 6

UntilJuly2011theCompanyhadthefollowingsubsidiary:

InstituteofNextGenerationNetworksPoštová1,01008Žilina

NGN technology research and development - - - (30) - (281)

16,731 19,231

Financialdataforsubsidiariesarebasedontheirseparatefinancialstatements.


18.Tradeandotherreceivables

thousandsofEUR 2011 2010 Non-currentFinanceleasereceivable(Note19) 4,509 -

4,509 -

CurrentTrade receivables from third parties 95,155 101,381Tradereceivablesfromsubsidiaries(Note27) 57 63Tradereceivablesfromrelatedparties(Note27) 4,770 4,351Other receivables from third parties 1,765 6,958Otherreceivablesfromsubsidiaries(Note27) 129 -Otherreceivablesfromrelatedparties(Note27) 1,048 508Financeleasereceivable(Note19) 1,554 -Derivatives - 23

104,478 113,284

TradereceivablesarenetofanallowanceofEUR22,316thousand (2010:EUR26,969thousand). Movements in the allowance for impaired trade receivables from third partieswereasfollows:

thousandsofEUR 2011 2010At 1 January 26,969 6,737Additions from merger - 19,076Charge for the year 6,169 5,346Utilised (9,405) (2,473)Reversed (1,417) (1,717)At 31 December 22,316 26,969

19. Finance lease – the Company as lessor

A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed periodoftime.Afinanceleaseisaleasethattransferssubstantiallyalltherisk and rewards incidental to ownership of an asset. Title may or may not eventually be transferred.

The Company entered into a lease agreement as a lessor with the com-mencement of the lease in May 2011. Based on the agreement, the Companyleasesterminalequipment(PCs,routers)tothecustomer.Byana-lyzingthetermsoftheagreement,theCompanyconcludedthattheleasemeetsthecriteriaforclassificationasafinancelease.Themaincriteriaareasfollows:

a)Ownershipoftheequipmentwillbetransferredtothelesseeattheendoftheserviceperiodforitsresidualvalue(ifany)inacasethatlesseewill request such ownership transfer at least one month before the end of the service period;

b)Non-cancelableleaseperiodisforthemajorpartoftheeconomiclifeof the assets concerned (53 months from May 2011 until September 2015);

c)Thepresentvalueoftheminimumleasepaymentsamountstoallofthefair value of the leased asset.

thousandsofEUR 2011Gross investment in the leaseNot later than 1 year 1,716Later than 1 year and not later than 5 years 4,703Later than 5 years -

Unearnedfinanceincome (356)Present value of minimum lease payments 6,063

thousandsofEUR 2011Present value of minimum lease paymentsNotlaterthan1year(Note18) 1,554Laterthan1yearandnotlaterthan5years(Note18) 4,509Later than 5 years -

6,063


20.Prepaidexpensesandotherassets

thousandsofEUR 2011 2010 Non-currentDeferred activation fees 5,067 6,238Easement 9,931 9,849Accrued revenues - 3,764Other 2,849 2,566

17,847 22,417

CurrentDeferred activation fees 3,863 4,514Accrued revenues - 8,185Other 2,670 3,319

6,533 16,018

21. Loans

TheCompanyprovidedthefollowingloans:

thousandsofEUR Úroková sadzba Splatnosť 2011 2010Deutsche Telekom AG 2.120% 1.6.2012 40,000 -Deutsche Telekom AG 2.050% 10.2.2012 60,000 -Deutsche Telekom AG 2.100% 30.3.2012 90,000 -Deutsche Telekom AG 1.395% 14.1.2011 - 20,000Deutsche Telekom AG 1.250% 3.3.2011 - 20,000Deutsche Telekom AG 1.395% 14.1.2011 - 45,000Short-termloan(Note27) 190,000 85,000

The loans granted to Deutsche Telekom AG are not secured. Deutsche Telekom AG has rating BBB+.

In 2010 the Company created a 100% allowance for a long term loan grantedtotheInstituteofNextGenerationNetworksinamountof EUR289thousandresultinginnetvalueofEUR0,duetoinabilityontheside of the debtor to repay the loan and subsequent liquidation of the debtor(Note16).

22. Cash and cash equivalents

thousandsofEUR 2011 2010Cash and cash equivalents 172,414 163,298

172,414 163,298

Cashatbanksearnsinterestatfloatingratesbasedondailybankdepositrates. Short-term investments are made for varying periods between one day and three months, and earn interest at the respective rates.

Creditqualityofcashatbanksisasfollows:ratingA+: EUR90,589thousand,ratingA-:EUR8,010thousandandratingA: EUR72,967thousand.

23. Shareholders’ equity

On 1 April 1999, Slovak Telekom became a joint-stock company with 20,717,920ordinarysharesauthorized,issuedandfullypaidataparvalueofEUR33.2pershare.DeutscheTelekomAGacquired51%ofSlovakTelekomthroughaprivatizationagreementeffectivefrom4August2000,bywhichtheCompanyissued5,309,580newordinaryshareswithaparvalueofEUR33.2pershare.Theshareswereissuedatapremiumtotalling EUR386,139thousand.AllthenewlyissuedsharesweresubscribedandfullypaidbyDeutscheTelekomAG.TheprivatizationtransactionalsoinvolvedthepurchasebyDeutscheTelekomAGof7,964,445existingordinary shares from the National Property Fund of the Slovak Republic. By acquiring 51% share of Slovak Telekom, Deutsche Telekom obtained 51% of the total voting rights associated with the shares.

Asof31December2011,SlovakTelekomhadauthorizedandissued26,027,500ordinaryshares(2010:26,027,500)withaparvalueof EUR33.2pershare.Allthesharesissuedwerefullysubscribed.Duetothechange in the functional currency of the Company from the Slovak Crown to EURasat1January2009,therewasanincreaseinthesharecapitaloftheCompanyofEUR158thousand.ThestatutoryreservefundoftheCompanywas used to cover the increase in share capital.

In December 2009, the Board of Directors of Slovak Telekom approved the concept of the integration of Slovak Telekom with its 100% subsidiary T-Mobile.T-Mobileceasedtoexistwitheffectfrom1July2010andwaswound up without liquidation as of 30 June 2010 on the basis of a merger agreement concluded between Slovak Telekom and T-Mobile. For integra-tion of Slovak Telekom with T-Mobile refer to Note 4.

Financial statements for the year ended 31 December 2010 were autho-rizedforissueonbehalfoftheBoardofDirectorsoftheCompanyon 10 March 2011.

The statutory reserve fund is set up in accordance with Slovak law and is not distributable. The reserve is created from retained earnings to cover possiblefuturelosses.On28April2011,theGeneralMeetingapproveddistributionoftheprioryearprofitandresolvedtotransfer10%oftheprioryearstatutoryprofitstothereservefund,withtheremainingpartofthe2010profitbeingretained.

In2011theCompanydeclaredandpaidadividendofEUR4.99pershare(2010:EUR5.11pershare).Onthebasisofthisproposedappropriation,totaldividendsofEUR130,000thousand(2010:EUR132,933thousand)werepaidinJuly2011.Approvalofthe2011profitdistributionwilltakeplace at the Annual General Meeting scheduled for 30 April 2012.


24. Trade and other payables and deferred income

thousandsofEUR 2011 2010 Non-current

Contingentconsideration(earn-out) - 2,378Deferred income 5,943 8,023

5,943 10,401 CurrentTrade payables to third parties 86,487 102,993Tradepayablestosubsidiaries(Note27) 6,339 2,649Tradepayablestorelatedparties(Note27) 11,470 4,741Amounts due to employees 19,817 18,252

Contingentconsideration(earn-out) 2,438 -Deferred income 36,386 39,902Other payables to third parties 11,684 13,055Otherpayablestorelatedparties(Note27) 56 -

174,677 181,592

Amountsduetoemployeesincludesocialfundliabilities:

thousandsofEUR 2011 2010At 1 January 111 193Additions from merger - 2Additions 1,740 1,551Utilisation (1,653) (1,635)At 31 December 198 111

25. Provisions

thousandsofEUR

Legal and regulatory claims

Asset retirement obligation

Loyalty program

Termination benefits

Employee benefits Other Total

At 1 January 2011 1,757 8,436 2,449 3,960 2,912 1,935 21,449Arising during the year 979 134 181 6,964 1,023 3,377 12,658Reversals (483) (629) (1,275) - (3,478) (252) (6,117)Utilised (140) (140) (1,330) (8,629) (87) (2,897) (13,223)Interest impact - 182 - - 367 10 559At 31 December 2011 2,113 7,983 25 2,295 737 2,173 15,326

Non-current - 7,983 - - 737 1,192 9,912Current 2,113 - 25 2,295 - 981 5,414

2,113 7,983 25 2,295 737 2,173 15,326

Legal and regulatory claims The provision includes amounts in respect of legal and regulatory claims brought against the Company. It is the opinion of the Company’s manage-ment that the outcome of these legal and regulatory claims will not result in anysignificantlossbeyondtheamountsprovidedat31December2011.


Asset retirement obligationThe Company is subject to obligations for dismantlement, removal and restoration of assets associated with its cell site operating leases (Note 2.19).Cellsiteleaseagreementsmaycontainclausesrequiringrestorationof the leased site at the end of the lease term, creating an asset retirement obligation.

Loyalty programFrom August 2011, the Company discontinued provision of the loyalty points to its customers. All points granted by August 2011, but not redeemedbythecustomersexpiredon31December2011.Provisionforthepoints,whichwerenotutilizedbycustomers,wasreleased.RemainingbalanceoftheprovisionofEUR25thousandwasreleasedinJanuary2012.

Termination benefitsThe restructuring of the Company’s operations resulted in headcount reductionof733employeesin2011.TheCompanyexpectsafurtherheadcountreductionof169employeesin2012asaresultofanongoingrestructuringprogram.Adetailedformalplanthatspecifiesthenumberofstaffinvolvedandtheirlocationsandfunctionswasdefinedandauthorisedby management and announced to the trade unions. The amount of com-pensation to be paid for terminating employment was calculated by refe-rencetothecollectiveagreement.Theterminationpaymentsareexpectedtobepaidwithintwelvemonthsofthestatementoffinancialpositiondateandarerecognizedinfullinthecurrentperiod.

Retirement and jubilee benefitsTheCompanyprovidesbenefitplansforallitsemployees.Provisionsarecreatedforbenefitspayableinrespectofretirementandjubileebenefits.One-offretirementbenefitsaredependentonemployeesfulfillingthere-quiredconditionstoenterretirementandjubileebenefitsaredependentonthenumberofyearsofservicewiththeCompany.Thebenefitentitlementsare determined from the respective employee’s monthly remuneration or as adefinedparticularamount.

thousandsofEUR

Retirement benefits Jubilee Total

Present value of the defined benefit obligationAt 1 January 2011 8,528 275 8,803Interest cost 358 9 367Current service cost 552 19 571

Past service costs due to plan amendments 2,530 - 2,530 Benefitspaid (66) (20) (86)Actuarial gains (3,299) (26) (3,325)At 31 December 2011 8,603 257 8,860

Pastservicecostnotrecognizedinthestatementoffinancialposition (7,970) - (7,970)Curtailment gain (105) (48) (153)

Liability recognized in the statement of financial position at 31 December 2011 528 209 737

PastservicecostsinamountofEUR2,530thousandrelatetoamendedtermsofretirementbenefit.Thecurtailmentgaininamountof EUR153thousandresultedfromareductioninthenumberofparticipantscoveredbytheretirementandjubileebenefitplans.

Principalactuarialassumptions,exceptforinterestcosts,usedindetermin-ingthedefinedbenefitobligationincludethediscountrateof5.210%.

Interest costs include the discount rate as at the beginning of the account-ingperiodof3.238%.Averageretirementageis62years.Theexpectedgrowth of nominal wages is 2.900%.

26.Commitments

The Company’s non-current assets purchase and miscellaneous purchase commitmentswereasfollows:


Commitments for the acquisition of intangible assets 14,603 1,234

Commitments for the acquisition of property and equipment 8,690 9,909Commitments for the purchase of services and inventory 93,142 40,918

116,435 52,061

The Company has commitments for the acquisition of tangible and intangi-blefixedassetsmainlywithDeutscheTelekomAGofEUR6,150thousandrelating to the project NG CRM.

The Company has other purchase commitments relating primarily to out-sourcing of operation and maintenance of technologies with Ericsson Slo-vakiaofEUR18,400thousand,provisionofsatellitedigitalTVwithMagyarTelekomofEUR15,261thousand,purchaseofdevicesfromAppleof EUR8,985thousandandLeadtekofEUR4,148thousand,outsourcingofreal estate management with BK Service International of EUR7,441thousandandmanagementofdatacentreswithCOFELYofEUR5,120thousand.

Thefutureminimumoperatingleasepaymentswereasfollows:

thousandsofEUR 2011 2010Operating lease payments due within one year 5,281 11,420Operating lease payments due between one and fiveyears 5,243 12,254Operatingleasepaymentsdueafterfiveyears 111 2,145

10,635 25,819

The Company has commitments under operating leases of EUR6,215thousandfromrentalofadministrationpremisesandof EUR4,420thousandforshopsandcarfleetrental.


TheCompanyconductsbusinesswithitssubsidiaries(PosAm,Zoznam,ZoznamMobile,TelekomSec,T-MobileSlovenskountil30June2010)as well as with its ultimate parent, Deutsche Telekom AG and its subsi-diaries, associates and joint ventures. Business transactions relate mainly totelephonecallsandothertrafficintherelatedparties’networks.Othertransactions include data services, management, consultancy, other ser-vicesandpurchasesoffixedassets.TheCompanypurchasedfixedassetsinamountofEUR9,062thousand(2010:EUR2,965thousand).

The Company granted Deutsche Telekom AG a short-term loan of EUR190,000thousand(2010:EUR85,000thousand).InterestrelatedtotheloanamountedtoEUR2,777thousand(2010:EUR1,458thousand)(Notes9,21).

In March 2011 the General meeting of PosAm declared a dividend of EUR1,020thousand,whichwaspaidin2011.Therewasnodividenddeclared by other subsidiaries in 2011.

TheSlovakGovernmenthassignificantinfluenceoverthefinancialand operating policy decisions of the Company through 49% of the shares of the Company. The shares are owned by Slovak Republic through the MinistryoftheEconomyoftheSlovakRepublic(34%)andbytheNationalPropertyFundoftheSlovakRepublic(15%).ThereforetheSlovakGovern-ment and the companies controlled or jointly-controlled by the Slovak GovernmentareclassifiedasrelatedpartiesoftheCompany(“SlovakGovernmentrelatedentities”).

In2011theCompanypaidtotheTelecommunicationsOfficeoftheSlovakRepublicfeeofEUR47,767thousandfortheprolongationofthelicensefortheprovisionofmobileservicesunderthefrequenciesof900MHz,1800MHzand450MHz(Notes1,14).TheCompanyalsoincurredexpensesofEUR7,353thousand(2010:EUR3,854thousand)withrespectto other frequency and telecommunication equipment related fees to the TelecommunicationsOffice(Note7).

During 2010 the Company has entered into a contract for the period of 5 years with the Slovak Government related entity on establishment and deliveryofcommunicationsystem,leaseofterminalequipment(Note19),delivery of internet connectivity and other telecommunications services. ThetotalvalueofthecontractsisapproximatelyEUR23,859thousand,ofwhichrevenueofEUR12,426thousandwasrecognizedduring2011.

During 2001 the Company has signed a master agreement with the Slovak Government related entity on providing services of communications infra-structure. The contract amount depends on actual services provided during thefinancialperiod.In2011,theCompanyrecognizedrevenuerelatedtothiscontractofEUR8,673thousand(2010:EUR9,073thousand).

During 2011 the Company purchased electricity and electricity distribution services from the Slovak Government related entities for EUR8,537thousand(2010:EUR10,947thousand).

During 2011 the Company purchased postal and cash collection services forEUR5,524thousand(2010:EUR5,840thousand)andleasedspaceforEUR2,043thousand(2010:EUR2,132thousand)fromtheSlovakGovern-ment related entity.

The Company routinely provides telecommunication and other electronic communication services to the Slovak Government and its related entities as part of its normal business activities. The Company also purchases ser-vices and goods from the Slovak Government related entities in the normal course of business.

Deutsche Telekom as the parent company controlling Slovak Telekom is a related party to the Federal Republic of Germany. Slovak Telekom had no individuallysignificanttransactionswiththeFederalRepublicofGermanyor entities that it controls, jointly controls or where Federal Republic of Germanycanexercisesignificantinfluenceineither2010or2011.

Compensation of key management personnel Thekeymanagementpersonnel,20innumber(2010:20)includemem-bersoftheExecutiveManagementBoard,BoardofDirectorsandSupervi-sory Board.

thousandsofEUR 2011 2010Shorttermemployeebenefits 2,495 2,008Cash based incentive program payments 270 204

2,765 2,212

thousandsofEUR 2011 2010ExecutiveManagementBoard 2,666 2,138Board of Directors 55 39Supervisory Board 44 35

2,765 2,212

27. Related party transactions

Receivables Payables Sales and income Purchases CommitmentsthousandsofEUR 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010

DT AG 191,639 85,861 8,953 2,348 5,459 2,679 10,328 3,597 7,480 -Subsidiaries 186 63 6,339 2,649 1,642 13,563 11,434 7,837 - -Other entities in DT AG group 4,177 3,998 2,573 2,393 11,675 8,552 11,745 9,056 - -Other shareholders of the Company 2 - - - 51 - 1 - - -

196,004 89,922 17,865 7,390 18,827 24,794 33,508 20,490 7,480 -


28.Contingencies

Legal and regulatory casesOn8April2009,theEuropeanCommission(“Commission”)openedpro-ceedings against the Company. The Commission is investigating whether the Company may have engaged in conduct obstructing competition in the Slovak Republic, in violation of Article 102 of the Treaty on the Functioning oftheEuropeanUnion(“TFEU”)inparticularwhethertheCompanyhasengagedinrefusaltosupplyand/orinmarginsqueezeconducttothedetri-ment of its competitors on the broadband market.

The investigation has proceeded through a series of questionnaires, to which the Company responded in a timely and professional manner. The Company has also adopted a pro-active approach to the investigation by submittingfour“issuespapers”,substantiatingwhytheCommissionshouldnot intervene in the present case. These papers were accompanied by reportsfromtwoindependentexperts,addingtotheircredibility.

On28January2011,theCompanymetwiththeCommissiontodiscussthe current status of the Commission’s investigation. On 3 February 2011 and 5 July 2011 Deutsche Telekom met with the Commission to discuss parental liability of Deutsche Telekom. The Commission now has to decide whether to issue a Statement of Objections setting out its preliminary view. If proven, the allegations against the Company could lead to the Commis-sionfindingthattheCompanywasininfringementofArticle102TFEUandimposingafineontheCompany.Inproceedingsofthiskind,thefinalamountofthefineshallnot,inanyevent,exceed10%ofthetotalturnoverin the preceding business year of the undertaking. However, in the event thattheCommissionisabletoestablishso-called“parentalliability”duetothe“influence”thatDeutscheTelekomallegedlyexertsontheCompany,this could be understood as the turnover of the group and could attain 10% of overall turnover. Company’s legal position is that the likelihood of theCommissionissuingarulingofinfringementandimposingafineispossible rather than probable and a provision has not been made in these financialstatements.Should,however,theCommissiondecidetoadoptaninfringement decision, it is not possible at this preliminary stage of the case topredicttheleveloffinetowhichCompanywouldbeexposed.

In 1999, a lawsuit was brought against Company for compensation of damagesandlossofprofitallegedlycausedbyswitch-offoftheRadioCDInternational(“CDI”)broadcastingin1996.RadioCDIwasaprogramof Slovak Radio directed to the territory of Austria and broadcasted by Com-pany.In1996,thebroadcastingoftheRadioCDIwasswitchedoff,basedon the request of the Council for Radio and Television Broadcasting stating thatRadioCDIbroadcastingviolatedthelaw.In2011,thefirstinstancecourt decided that Company is obliged to pay the plaintiff the amount of EUR32,179thousandoftheprincipaland17.6%lateinterestsince 4September1996untilfullypaid.Companyfiledanappealagainstthatjudgmentasitisoftheopinionthatthefirstinstancecourtdidnotdealwith a number of proofs and assertions provided by Company. Additionally, Company believes that serious errors were committed in the matter at issue onthepartofthefirstinstancecourt,whicherrorsprovetheincorrectnessofthejudgementandshouldbesufficientenoughtoconsiderthatwhilstthe loss in this lawsuit is possible, it is not likely.

In 2007 the Regional Court in Bratislava overturned the second stage deci-sionoftheAnti-MonopolyOffice(“AMO”),whichhadimposedonCompanyapenaltyofEUR29,377thousandforabuseofdominantpositionbyfailingtoprovideaccesslocalloopsservice(asanessentialfacility)toCompany’scompetitors within the period of August 2002 to August 2005. Subse-quently, AMO initiated a new proceeding on this same issue and imposed

onCompanythesamepenaltyagain.Companyfiledanadministrativecomplaint against this decision. Subsequently, in 2010, the Regional Court cancelled the challenged AMO decisions in full, however AMO appealed againstthisjudgment.In2011,theSupremeCourtconfirmedthejudgmentof the Regional Court, thus the case was returned back to AMO for further proceedings and correction of errors. On 3 February 2012, Slovak Telekom was delivered a decision of the AMO on closing the proceedings. The deci-sionisfinal.TheAMOadmittedthatthereisnosufficientevidencetoprovethe abuse of dominant position by failing to provide access to local loops (asanessentialfacility)toCompany’scompetitorsandthereisnorealexpectationthatAMOwouldbeabletogathersuchevidenceinthefuture.

In2009,AMOimposedonCompanyapenaltyofEUR17,453thousandfor abusing its dominant position and violating competition law by price squeezeandtyingpracticesonseveralrelevantmarkets(voice,dataandnetworkaccessservices).CompanyfiledanadministrativecomplainttotheRegional Court in Bratislava in 2009. In January 2012 the Regional Court cancelled the challenged AMO decisions in full. The judgment is appeal-able. As management believes that it is possible rather than probable that this case will result in an obligation to pay the penalty, a provision has not beenmadeinthesefinancialstatements.

In 2007 the Regional Court in Bratislava overturned the second stage deci-sion of AMO, which had imposed on Company a penalty of EUR2,656thousandforabusingitsdominantpositionintenderingforcomplextelecommunicationproject.Subsequently,AMOinitiatedanewproceeding on this same issue and imposed on Company the penalty ofEUR2,423thousandforabusingitsdominantpositionintenderingforcomplextelecommunicationprojectbymarginsqueezeondataVPNservices.CompanyfiledanadministrativecomplainttotheRegionalCourtin Bratislava in 2009, based on which, in 2010, the Regional Court decided in favour of Company and cancelled AMO decisions in full. AMO appealed thisjudgement,however,in2011theSupremeCourtconfirmedthefirstinstance judgment and returned the case back to AMO for further proceed-ings and correction of errors. As management believes that it is possible rather than probable that this case will result in an obligation to pay a penalty,aprovisionhasnotbeenmadeinthesefinancialstatements.

The Company is involved in legal and regulatory proceedings in the normal courseofbusiness.ManagementisconfidentthattheCompanywillsuffernomateriallossasaresultofsuchproceedingsinexcessoftheprovisionsalreadyrecognizedinthefinancialstatements(Note25).

Tax legislationManyareasofSlovaktaxlaw(suchastransfer-pricingregulations)havenotbeensufficientlytestedinpractice,sothereissomeuncertaintyastohowthetaxauthoritieswouldapplythem.Theextentofthisuncertaintycannotbequantified.Itwillbereducedonlyiflegalprecedentsorofficialinterpretations are available. The Company’s management is not aware of anycircumstancesthatmaygiverisetoafuturematerialexpenseinthisrespect.


29. Financial assets and liabilities

Fair valuesBelowisacomparisonofthecarryingamountsandfairvaluesofmaincategoriesoffinancialassetsandliabilitiescarriedinthefinancialstatements:

Carrying amount Fair valuethousandsofEUR 2011 2010 2011 2010

Financial assetsNon-current

Held-to-maturity investments - 39,266 - 39,344Financeleasereceivable(Note19) 4,509 - 4,509 -

CurrentCash and cash equivalents 172,414 163,298 172,414 163,298Held-to-maturity investments 82,724 43,079 82,757 43,110Term deposit over 3 months - 60,000 - 60,000Tradereceivables(Note18) 99,982 105,795 99,982 105,795Financeleasereceivable(Note19) 1,554 - 1,554 -Loans(Note21) 190,000 85,000 190,000 85,000Derivativefinancialinstrumentsheldfortrading - 23 - 23

Financial liabilitiesNon-current

Contingentconsideration(earn-out)(Note24) - 2,378 - 2,378Current

Tradepayables(Note24) 104,296 110,383 104,296 110,383Contingentconsideration(earn-out)(Note24) 2,438 - 2,438 -

Cashandcashequivalents,derivativefinancialinstrumentsheldfortrading,trade receivables, trade payables and loans have short maturities and their carryingamountsapproximatetheirfairvaluesatthereportingdate.

The held-to-maturity investments consist of state bonds, state promissory note and a bank bond with remaining maturity up to 1 year. The Company has the ability and intends to hold these investments till maturity. The fair value of the held-to-maturity investments amounted to EUR82,757thousandat31December2011(2010: EUR82,454thousand).Thisvaluewasestablishedbasedonmarketvaluesprovided by banks who act as depositors of the securities.

If the interest rates of the held-to-maturity investments were 15 basis points higher/20 basis points lower and all other variables were held constant, the Company’sprofitfortheyearended31December2011andequityat 31December2011wouldincrease/decreasebyEUR127thousand/ EUR170thousand(2010:EUR64thousand/EUR73thousand).

Forward foreign exchange contractsAs of 31 December 2011 the Company was not a party to any foreign exchangeforwardcontract.

Asof31December2010theCompanywasapartytofiveforeignexchangeforwardcontractswithmaturityofonetofivemonthstohedgeanticipatedfutureforeigncurrencyexpenditureinUSD.Whilethesecontractsprovidedeffective economic hedges under the Company’s risk management policies,theydidnotqualifyforhedgeaccountingunderthespecificrulesofIAS39andwere,therefore,classifiedasheldfortradinguponinitialrecognition.

The net gain from the change in the fair value of derivative instruments was recognizedintheincomestatementintheamountofEUR17thousand,netoftaxofEUR3thousandfortheyearended31December2010.

30. Audit fees

In 2011 the Company changed the audit company to PricewaterhouseCoopersSlovensko(2010:Ernst&YoungSlovakia). In 2011 the Company obtained statutory audit services in amount of EUR136thousand(2010:EUR170thousand),otherassuranceservicesinamountofEUR120thousand(2010:EUR169thousand)andotherservi-cesinamountofEUR24thousand(2010:EUR43thousand).

31. Events after the reporting period

The Company reported contingent liability in amount of EUR29,377thousandasat31December2011asdisclosedinNote28.Further development of the case during the 2012 resulted in closing of the proceedings against the Company.

There were no other events, which have occurred subsequent to the yearend,whichwouldhaveamaterialimpactonthefinancialstatementsat31 December 2011.


Independent auditor’s report


Proposalforprofitdistribution

On30April2012theOrdinaryGeneralMeetingwilldecideonprofitdistri-bution for the year 2011, together with approval of Separate and Consolida-ted Financial Statements and Annual Report of Slovak Telekom for the year 2011.ThefollowingproposalforprofitdistributionwassubmittedtotheGeneralMeeting:

thousandsofEUR

ProfitofSlovakTelekom,a.s.fortheyear2011 113,933Distributiontofunds:

Statutory reserve fund 11,393Retained earnings 102,540

Financial statements Proposal for profit distribution | 134

slovak telekom – annual report 2011

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